Savantor MarketEye: January 17 - 31 2008

Savantor Limited 68 Lombard St London EC3V 9LJ This is a confidential, high-level industry news and business intelligence Tel: 0870 734 6250 Fax: 0870 734 6251 update bulletin. For further information on any of the items contained email: [email protected] within the bulletin or to discuss the potential impact of these items on www.savantor.com your business, please contact Savantor on our dedicated support centre e-mail address ([email protected]).

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Items in this issue: Savantor’s Views...... 1 UK online sales increase...... 3 FBI warns of rise in vishing attacks ...... 3 Products and Initiatives...... 2 PBS signs 117 banks to Sepa direct debit offering ...... 4 New UK local loyalty card ...... 2 NatWest most targeted by phishers ...... 4 ICICI Bank introduces mobile banking application...... 2 SEPA goes live...... 4 Monitise launches NFC-based payments platform ...... 2 Outsourcing, Acquisitions and Deals...... 4 First Direct on Safari ...... 2 IBM wins Allied Irish deal...... 4 LTSB introduces Shariah compliant money transfer Atos Origin signs LV= IT outsourcing deal ...... 4 account...... 2 VocaLink to manage HSBC ATMs in convenience Nationwide Building Society introduces Xiring Personal stores...... 4 Card Readers...... 2 Germany's cadooz selects First Data for pre-paid card Market News and Views...... 3 processing ...... 5 Increase in adoption of alternative payment methods ..... 3 PayPal to acquire Fraud Sciences ...... 5 BBC News names NFC one of Five Top Technologies HBOS signs for SAS card fraud detection technology ..... 5 for 2008...... 3

Savantor’s Views Improved operations management is fast becoming a greater priority for financial institutions due to a variety of factors e.g. • need for banks to meet new regulatory requirements • pressure to become SEPA compliant • pressure to reduce costs across the banking value chain, leading to increasing importance from scale economies, e.g. in processing • expensive and extensive legacy system replacements/upgrades are required to cope with increasing volumes, electronic channels and new standards • the credit crunch of 2007 and the resulting market turmoil have put processes under increasing stress To manage the cost of operations in the future, processes will have to improve: • To provide better measurement – Some organisations still rely on largely qualitative assessments of operational risks. Without quantification an organisation will fail to take a prioritised approach to managing risk events as they occur. • To provide better management – line management require information that is faster and more accurate to help improve their decision making. They need process that are more flexible and can respond quickly to changing needs. To meet these demands, systems and processes will have to evolve to become smarter. Independent reviews which are timely and cost effective and can quickly identify weak points and actions to resolve them can provide the service financial institutions are looking for.

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Products and Initiatives

New UK local loyalty card A local loyalty scheme called Wedge is designed to increase business for independent stores by raising the profile of local retailers in the run up to the 2012 Olympics. The card will be given away to attendees of the East Festival in London during March. Holders of the card receive discounts of 10 – 50% and special offers from music and entertainment venues. Up to 50% of the profits go to charity. Wedge’s founders will not do business with a concern that has more than 10 shops. There are currently 24,000 cards in use and 600 retailers involved. (Source date: 20th January, 2008)

ICICI Bank introduces mobile banking application India's ICICI Bank has launched iMobile, a mobile banking platform that enables customers to use their handsets to transfer funds and pay bills. The bank says the free service enables customers to transfer funds from ICICI savings, credit card and loan accounts using their mobile phones. Money can be sent to ICICI accounts as well as those held with other institutions. Customers can also use their handsets to pay utility bills and insurance premiums. Customers who are registered for mobile alerts from the bank can download the application by sending an SMS. Those that have a GPRS connection will then receive a WAP link for activation. Customers without GPRS can download the application from the bank's Web site on their desktop before transferring it to their handset. (Source date: 21st January, 2008)

Monitise launches NFC-based payments platform Monitise has announced the launch of MoniTrust, its platform for Near Field Communication (NFC) payments and ticketing. The service integrates to Monitise's live multi-bank, multi mobile operator mobile banking and payments ecosystems (MONILINK in the UK and Monitise Americas in North America) providing a delivery framework for contactless payments using the mobile handset. Through a single connection to MoniTrust's open platform, participants can enable their consumers to manage their bank accounts, card accounts, mobile wallets, transport and ticketing applications in the contactless environment in a consistent way whether it is requesting a card to be loaded onto your mobile, checking a balance before making a contactless payment, paying for a travel season-ticket from a bank account and loading it into your mobile, or topping up a child's school meal allowance on their mobile. (Source date: 24th January, 2008)

First Direct on Safari First Direct is now offering its online banking services through Apple's Safari Web browser, as well as on the recently launched iPhone and iPod Touch. The service became fully compatible with Safari last week, while it's been available on the iPhone and iPod Touch since their respective UK launches. Just under 80%of First Direct's customers bank online and 87% of all transactions are carried out online. Around 10% of the customer base uses Apple Macs- a higher proportion than other banks, according to First Direct. (Source date: 24th January, 2008)

LTSB introduces Shariah compliant money transfer account Lloyds TSB has launched a Shariah-compliant nostro account that enables customers to transfer money around the world in line with Islamic principles. The new account does not pay interest or provide an overdraft facility, in line with Shariah law. In addition, the account prevents any funds being invested in industries - such as alcohol and gambling - that are prohibited under Islam. Lloyds TSB says the account, which is aimed at the UK's two million Muslims and 100,000 Muslim firms, is the first of its kind to be offered by a mainstream western bank. (Source date: 24th January, 2008)

Nationwide Building Society introduces Xiring Personal Card Readers Nationwide has decided to be amongst the first to implement the next generation of fraud prevention technology. Xiring has supplied Nationwide with over one million card readers. The Xi-Sign 4000 APACS from Xiring is a portable, unconnected smart card reader that provides an extra layer of security for customers by authenticating both them and the transaction. The user inserts their Visa debit card into the card reader, enters their four-digit PIN number, and enters a reference number (an eight digit

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number) provided by the online bank. The reader then displays an eight digit pass code to be entered onto the Internet Bank to confirm the transaction. This unique code is only valid for one transaction and cannot be re-used. Full deployment services of these readers direct to the end users will be provided by Xiring during the spring 2008. (Source date: 30th January, 2008)

Market News and Views

Increase in adoption of alternative payment methods Around 30% of US online retailers now offer customers the option to use alternative payment methods (APM) - such as Google Checkout, PayPal and Bill me Later - which is a 25% increase since February 2007, according to a poll conducted by interactive marketing firm Brulant. The survey of 100 US e-retailers, conducted in November, shows that Bill Me Later saw the highest adoption, with 21% of firms polled offering the service, a rise from 17% last February. PayPal came closely behind with 19% of firms offering the service - up from 6% at the beginning of last year. Meanwhile, 10% of e-retailers now offer the Google Checkout service, double the adoption it saw in February 2007. Around 5% of the surveyed companies now offer all three of these alternative payment options, compared to none in February last year. (Source date: 17th January, 2008)

BBC News names NFC one of Five Top Technologies for 2008 The NFC Forum has announced that "Click," the BBC's flagship technology program, has chosen NFC as one of its five top technologies for 2008. BBC News selected the five technologies from the hundreds of consumer products and technologies on display at the Consumer Electronics Show (CES) International in Las Vegas. (Source date: 17th January, 2008)

UK online sales increase UK Internet sales hit a record high in 2007, with £46.6 billion spent online during the year, a 54% increase on the £30.2 billion recorded in 2006, according to figures released by Capgemini and the Interactive Media in Retail Group (IMRG). The report shows that: • for every pound spent on retail goods in 2007, 15 pence was spent online. This is up from 10 pence for every pound in 2006. • online shopping reached an all time high in the run up to Christmas, with £15.2 billion spent online in October to December. • December's e-commerce sales were nearly 50% higher than last year, but the figures show that demand for online shopping tailed off significantly towards the end of 2007. This is attributed to the impact of the global credit crunch on the UK economy. • the final week of the year only saw a 4% reduction in online sales - compared to a 22% reduction in the previous year - suggesting that shoppers hit the online sales to spend Christmas money and vouchers rather than the high street. (Source date: 18th January, 2008)

FBI warns of rise in vishing attacks The US Federal Bureau of Investigation (FBI) is warning of an "alarming" rise in so-called "vishing" attacks which involve fraudsters using Voice over Internet Protocol (VoIP) technology to con banking customers into disclosing personal data. Unlike regular e-mail phishing attacks, vishing uses SMS text messages or phone calls in addition to e-mail to persuade customers to divulge personal data, often by claiming their account is suspended, deactivated or terminated. But in addition to bank account numbers, vishing attacks aim to con customers into divulging credit and debit card details. Customers are directed to contact their bank using telephone number provided in an e-mail or by an automated recording. The call is then routed through a VoIP answering system and customers are asked to enter their card number. A version of the scam that was recently reported involved the sending of text messages claiming the recipient's online bank account has expired. The message instructs the customer to renew their online bank account by using the link provided. (Source date: 21st January, 2008)

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PBS signs 117 banks to Sepa direct debit offering Payment Business Services (PBS) says it has signed deals to provide Sepa compliant direct debit payment processing services to a group of 117 banks in Denmark. Although Denmark is not currently in the euro zone, banks and processors in the country - like those in the UK - that do business in the region will need to be Sepa-compliant. The Sepa initiative is expected to intensify competition and consolidation in the euro zone so that ultimately just a few payment processors will remain. Research released by Accenture last year predicted that following Sepa, debit and credit card schemes will be dominated by MasterCard and Visa, with only four domestic card schemes offering full Sepa payments services. (Source date: 22nd January, 2008)

NatWest most targeted by phishers NatWest is the financial institution most targeted by phishing fraudsters, according to a study conducted by Clearmymail. A review of all the spam and fraudulent phishing e-mails blocked by Clearmymail in December found that 41% were targeting NatWest customers. Clearmymail says an average of 18 fake NatWest phishing e-mails were sent to its customers during the month. Citi came second in the table, with 27% of fraudulent e-mails targeting customers of the US bank. An average of 12 fake Citibank e-mails were sent to Clearmymail customers during December. HSBC came third in the table, with 11% of blocked spam featuring the bank's name. Clearmymail customers were sent an average of five fake HSBC e-mails during last month. Abbey featured in 6% of blocked messages and Lloyds TSB was named in 4% of messages. PayPal came sixth in the Clearmymail study, with 2% of spam aimed at eBay customers. (Source date: 23rd January, 2008)

SEPA goes live The first stage implementation of SEPA has gone live with the official launch of the SEPA payment instrument for credit transfers. The SEPA credit transfer (SCT) will enable euro credit transfers to be made within a maximum of three days, without any deductions from the principal amount. EBA Clearing is reporting a successful start to its Step2 SEPA credit transfer service on its pan- European automated clearing house (PE-ACH) platform. More than 100 banks tested the new service with EBA Clearing and SIA-SSB in the second half of 2007. APACS says that although Britain is not in the euro zone, several banks based in the country are joining the SCT scheme from the launch and the banks involved at this stage account for about 85% of the UK payments market and this is expected to increase over time. (Source date: 28th January, 2008)

Outsourcing, Acquisitions and Deals

IBM wins Allied Irish deal Allied Irish Bank (AIB) has awarded a three year contract, worth EUR45 million, to overhaul its core banking infrastructure to IBM. Under the contract IBM will implement and support a new core banking infrastructure consisting of i-flex's Flexcube core banking package running on an IBM System z platform powered by DB2 and WebSphere software. (Source date: 17th January, 2008)

Atos Origin signs LV= IT outsourcing deal UK insurance firm LV=, formally known as Liverpool Victoria, has contracted with Atos Origin for the management of its mainframe and mid-range infrastructure. LV= says it is restructuring IT services to support new products, customer channels and acquisitions as it embarks on an aggressive growth plan. As part of the process the firm is bringing control and governance of IT service in-house, whilst appointing third party suppliers for 'build and operate' services. As of March 2008, Atos Origin will support legacy systems at LV='s life and general insurance businesses. The vendor will manage the mainframe and mid-range infrastructure at the unit and the support and development of various business applications. (Source date: 17th January, 2008)

VocaLink to manage HSBC ATMs in convenience stores VocaLink has won a three year deal to operate HSBC's new remote estate of free-to-use cash machines which will be located convenience stores across the country. Under the terms of the deal VocaLink will

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manage the end-to-end operation of the remote network, including the ATM operating infrastructure. The vendor will also supply chain services. HSBC is one of the banks rolling out free-to-use cash machines, specifically in low income areas, under a deal agreed with ATM operators and the government in December 2006, which followed an investigation by the parliamentary Treasury Select Committee into the growing number of fee-charging cash machines in the UK. (Source date: 24th January, 2008)

Germany's cadooz selects First Data for pre-paid card processing First Data Corp. has signed a contract with cadooz AG, a provider of corporate gift and incentive vouchers in Germany, to deliver card-based incentive and reward solutions. Established in 2000, and headquartered in Hamburg, cadooz delivers incentive programmes and solutions, including paper-based and online gift certificates and individually tailored reward systems. Together with First Data, cadooz will now also offer electronic card-based products, using 'controlled loop' prepaid card technology, where use of the prepaid card is restricted to specific merchants. To meet the requirements of cadooz, First Data is to provide processing as well as card procurement, personalisation and customer service. (Source date: 24th January, 2008)

PayPal to acquire Fraud Sciences PayPal is acquiring Fraud Sciences, an Israel-based developer of online risk tools, for $169 million. In a statement PayPal says Fraud Sciences' risk technology will enhance its own proprietary fraud management systems and those operated by its parent company eBay. The acquisition, which is subject to conditions, is expected to close within the next 30 days. (Source date: 28th January, 2008)

HBOS signs for SAS card fraud detection technology HBOS is implementing card fraud detection technology supplied by SAS which it will use to monitor debit card transactions. HBOS will initially use the product to monitor debit card transactions for suspicious and fraudulent activity by examining every HBOS debit and ATM card transaction in real- time. The fraud detection system provides the option for HBOS to extend its use to cover other types of transactional fraud, including banking and credit card fraud. (Source date: 31st January, 2008)

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