4th PSE Merchant Acquiring Conference

Will US EMV Migration Impact Acquiring Worldwide?

London, November 27th, 2014 Gérard de Moura

20141127-PSE Acquiring Conf-US EMV Migration-v1

About Galitt Key Figures

• 2013 Sales: 29M€ • 8% outside of France

• More than 150 active customers • 240 staff, experts in Card

Payment Systems (including 170 consultants)

• Privately owned

More than 20 years of experience

2 Business Units

• Consulting & Assistance: From strategic choices to system implementation via system design and support

• Engineering & Technology: From specific development to software products via system integration and processing

• Since 2006 • HQ in San Francisco, CA • Operations in Chicago, IL • Turnover $800k

• French Member since 2007

Breakdown of 2013 Business Lines Target Markets

• Banks & PSPs • Payment Brands • Card & Terminal Vendors • Retail & Oil Companies • Government & Transport

Training Business Analysis

Professional Services

Projects

Solutions

Testing Software

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US EMV Migration – Table of Contents

3

1. US EMV Migration in a nutshell

2. Chip & Choice

3. POS Certification Challenge

4. Debit Routing Rules

© Copyright Galitt

US Card Market

• Cards > 1B • > 3 per inhabitant

• Banks = 14,000 (117,000 branches) • Including more than 5,000 issuers

• Including 7,000 Credit Unions

• ATM # 430,000 • Withdrawals = 12B (2008)

•Merchants  ≈  9M   • 1.9M POS sold in 2012

(9.3% of the worldwide market)

• Acquirers  /  Processors  ≈  100   • Top 5: $2,693B – 53B transactions

• Transactions = 73B (2011) • Credit  =  24B  (≈$90/transaction) • Debit  =  49B  (≈$25/transaction)

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Sources: Bank for International Settlements, Committee on Payment and Settlement Systems (figures 2012) – Nilson Report – Discover – Galitt US (estimates)

US Debit Networks

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Liability Shift Dates

• Initial announcement by Visa (August 9, 2011) • MasterCard (January 30, 2012) – Discover (March 15, 2012) – Amex (June 29, 2012)

• Ambiguity Contact / Contactless • Regional Debit Networks

• Followers (with or without formal statements)

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2013 2014 2015 2016 2017

Acquirer Mandate

(April)

POS Liability Shift

(October)

AFD Liability Shift

(October)

ATM Liability Shift

(October)

ATM Liability Shift

(October)

EMV Migration Forum (EMF)

• Cross-industry body focused on supporting the EMV implementation steps

required for global and regional payment networks, issuers, processors,

merchants, and consumers to help ensure a successful introduction of more

secure EMV chip technology in the United States.

• http://www.smartcardalliance.org/pages/activities-emv-migration-forum

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US EMV Migration – Table of Contents

8

1. US EMV Migration in a nutshell

2. Chip & Choice

3. POS Certification Challenge

4. Debit Routing Rules

© Copyright Galitt

PIN or Signature: Cardholder's Choice

• US Debit transaction • PIN

• Single message

• US Credit transaction • Signature

• Dual message

• Debit transaction processing • PIN-preferred Merchant: PIN or cancel (the PIN entry!)

• PIN-neutral Merchant: Debit (=Pin) or Credit(=Signature)

• PIN or signature • Supported by Visa, MasterCard, Discover

• PIN only • Supported by most Regional Debit Networks

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PIN or Signature: a US Dispute

© Copyright Galitt 10 www.whitehouse.gov

creditcards.chase.com

www.bankofamerica.com

US EMV Migration – Table of Contents

11

1. US EMV Migration in a nutshell

2. Chip & Choice

3. POS Certification Challenge

4. Debit Routing Rules

© Copyright Galitt

Lack of (common) Terminal Specifications

• Terminal requirements issued by every Payment Scheme • Existing for credit

• Recently released for debit

• Still pending issues for some contactless debit

• Lack of governing body • Antitrust law apparently preventing cooperation

• Fierce competition between Payment Brands

• Payment "Implementation Guides" to be provided by the Acquirers/Processors • Varying according to verticals and retailers

• Varying depending of acquiring platforms

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Terminal End-to-End Certification (also known as "Terminal Integration")

• One procedure per Brand • "EMV Testing and Certification White Paper:

Current U.S. Payment Brand Requirements for the Acquiring Community"

• Regional Debit Networks coming soon

• Complexities and large numbers of merchants and systems to be certified

• “Tons”  of  targeted  systems: from 3,000 to 1,000,000 (depending on estimates!)

• 1,000’s  of VARs/ISVs without available resources and EMV chip experience

• Greatest short term challenge for the migration

• Simplification required by Acquirers/Processors (via the EMF)

• EMVCo Terminal Integration Task Force, addressing "Level 3"

"Brand-aligned Terminal Integration Testing Framework" (November 1st

, 2014)

• US Payments Security Taskforce: VARs & ISVs pre-certification process

• Processors & Service Providers enablement being considered

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US EMV Migration – Table of Contents

14

1. US EMV Migration in a nutshell

2. Chip & Choice

3. POS Certification Challenge

4. Debit Routing Rules

© Copyright Galitt

Dodd–Frank Act & Durbin Amendment

• Dodd–Frank Wall Street Reform and Consumer Protection Act • Federal Law signed by Barack Obama – 7/21/2010

• Regulation addressing he financial sector (243 rules!)

• Senator Dick Durbin's Amendment • Debit interchange fee

• "reasonable and proportional to the actual cost" • FED empowered to rule the debit market

• Right of refusal for merchants (based on amount)

• No  more  “Honor  All  Cards”

• FED initial ruling • Cap on per-transaction fee

• $0.21 + 0.05% + $0.01 for additional security measures (authorization)

• First target was $0.12 per transaction

• Only for Financial Institutions with total assets > $10B

• At least 2 Networks owned and processed by different company on every card

• Merchants to determine the transaction routing (to select the processing network)

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Debit Transaction Processing

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NETWORK 1

(ex. MasterCard)

NETWORK 2

(ex. STAR)

ISSUER

PROCESSORS

GATEWAYS or

STORE BACK-OFFICE

ROUTING RULES

Durbin & EMV?

• EMV Specifications at stake? • Cardholder choice (EMV) vs. merchant routing (Durbin)

Î Disputed understanding of the specs

• Request for EMV specifications Change

Î Rejected by Payment Brands (Schemes)

• 2 competing implementation options • Multiple AIDs on card: US tag + POS routing

Î Rejected  by  merchants’  associations • Unique US debit AID on card: no change in the current routing

• Convergence  on  “one  unique”  “Common  US  debit  AID”  per  card

• Visa US Common Debit AID (VIS VSDC )

• MasterCard US Common Debit AID (M/Chip PayPass™)

• Discover US Common Debit AID (D-PAS )

• Debit Network Common Debit AID (proprietary) to come

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Galitt Contact

18 © Copyright Galitt

Gérard de Moura Managing Director Galitt – President Galitt US

+33 612 118 812 / +1 650 200 7659 g.demoura@galitt.com

Contact

www.galitt.com & www.galitt.us

Thank you!