Fraud Update

Gord Jamieson

Visa Canada Payment System Risk

Notice

Copyright Notice This presentation may not be reproduced, further distributed, or published, in whole or in part, without Visa Canada’s prior written permission. Forward-Looking Statements This presentation contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These statements can be identified by the terms “objective,” “goal,” “strategy,” “opportunities,” “continue,” “can,” “will” and other similar references to the future. Examples of such forward-looking statements may include, but are not limited to, statements we make about our corporate strategy and product goals, plans and objectives. By their nature, forward-looking statements: (i) speak only as of the date they are made, (ii) are neither statements of historical fact nor guarantees of future performance and (iii) are subject to risks, uncertainties, assumptions and changes in circumstances that are difficult to predict or quantify. These forward-looking statements are based on our current assumptions, expectations and projections about future events which reflect the best judgment of management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by our comments today. Therefore, actual results could differ materially and adversely from those forward-looking statements because of a variety of factors. You should review and consider the information contained in our filings with the SEC regarding these risks and uncertainties. You should not place undue reliance on such statements. Unless required to do so by law, we do not intend to update or revise any forward-looking statement, because of new information or future developments or otherwise Disclaimer Survey results, research, opinions and recommendations are intended for informational purposes only and should not be relied upon for marketing, legal, technical, tax, financial or other advice. When implementing any new strategy or practice, you should consult with your legal counsel to determine what laws and regulations may apply to your specific circumstances. Visa and third party providers are not responsible for your use of the information, including errors of any kind, or any assumptions or conclusions you might draw from its use.

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Agenda

• Objective

• 50 Years of innovation

• EMV

• Global Fraud Rates

• Fraud Trends

• Our Strategy

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The world’s best way to pay and be paid,

everywhere and for everyone

Acceptance Reliability Convenience Security

Our Objective

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More than 50 Years of Innovation .

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. . . Has Fueled Payments Volume Growth

For the four quarters ended December 31, 2012, global payments volume on Visa cards was $4.0 trillion with $2.5 trillion on credit products and nearly $1.5 trillion on debit products.

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

Visa Inc. Payments Volume ($ trillions)

Debit

Credit

Notes: Credit includes consumer and commercial. Debit includes consumer, commercial, prepaid and online.

Source: Visa Operating Certificates

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Glo

bal

Fra

ud

to

Sal

es R

ate

Account Data Compromises

Terminal Placement and CVV

CAMS II

Advanced Authorization

PED

PCI SSC VbV

EMV Co

PABP

CAMS

CAP CAP II

PADSS

First Commercial Chip Security

First Fraud Detection System

CVV2

Source: Visa TC40 Fraud Reporting

Global fraud rates remain at historic lows

Visa Innovations in Fraud & Data Security

1992 – 2012

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Contact Chip Statistics Summary Global Issuance – As of September 2012

* As of Sep, 2012. As reported by member financial institutions globally and therefore may be subject to change.

Visa Europe is the exclusive licensee of Visa Inc. in the territory covered by the European Union

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Percentage of international card-present transactions that originate from chip terminals during 3rd Quarter 2012

As of Sep, 2012. Source VisaNet clearing & settlement counts.

*Visa Europe is the exclusive licensee of Visa Inc. in the territory covered by the European Union

Visa Chip Cards Global Acceptance Status

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The U.S. is a Unique Market

Globally, a liability shift is primarily used to enable EMV

• Technology innovation programs

• Government mandates

While we are following a successful model, the U.S. is complex

• Numerous domestic debit networks

• 2 processing environments – dual and SMS

• Newly regulated debit environment

• Simultaneous migration to contact and contactless chip

Visa will be measured and thoughtful with our implementation to ensure we minimize impact on all stakeholders

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Visa’s US EMV Roadmap

3

Build framework for mobile payments and future innovation leveraging EMV infrastructure for both contact and contactless payments

Support interoperability and improve authorization decisions as EMV adoption continues to grow worldwide

Reduce reliance on static data and incidence of counterfeit fraud

2

1

2011 2012 2013 2015 2017

Guide and Enforce Security

Standards

Technology Innovation

Program (TIP)

Acquirer Chip Processing

Mandate

POS Liability Shift +

ATM Third-Party Processor

Chip Processing Mandate

AFD Liability Shift

+ ATM Liability

Shift

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Global Fraud Rates Are Steady but . .

Elevated in the Americas and

Canada

Gross Fraud-to-Sales

Ratio Source: TC40 client fraud reporting and client Operating Certificate sales

Global Americas Canada

0.051 0.052 0.054

2010 2011 2012

0.078 0.084

0.092

2010 2011 2012

0.093

0.115 0.111

2010 2011 2012

5.1 5.2 5.4

2010 2011 2012

All Others Counterfeit

CNP (FT6) Lost/Stolen

Fraud Rates (bps)

2010 2011 2012

All Others Counterfeit

CNP (FT6) Lost/Stolen

Fraud Rates (bps)

2010 2011 2012

All Others Counterfeit

CNP (FT6) Lost/Stolen

Fraud Rates (bps)

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Fraud on Canadian Cards

• Counterfeit, Lost and Stolen fraud have experienced significant declines with the migration to Chip & PIN in Canada

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Source: Canadian Bankers Association (2009). Payment Card Partners Working Group (VISA Canada; MasterCard Canada; American Express Canada). Data for period ending December 2012.

Growing CNP Fraud

Increasing and shifting data compromises

New players, third parties, and

emerging markets

New products, services and technologies

High risk merchants and agents

Five Trends are Driving Risk

Today

2

3 4

5

1

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Source: TC40 client fraud reporting and client Operating Certificate sales

Global Americas Canada

The eCommerce Opportunity . . .

Growing CNP fraud

1

CNP 41%

Counterfeit 37%

Other 22%

CNP 45%

Counterfeit 33%

Other 22%

CNP 58%

Counterfeit 31%

Other 11%

2010

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Source: TC40 client fraud reporting and client Operating Certificate sales

Global Americas Canada

. . . Also Poses a Fraud

Challenge

Growing CNP fraud

1

CNP 47%

Counterfeit 35%

Other 18%

CNP 51% Counterfeit

30%

Other 19%

CNP 72%

Counterfeit 20%

Other 8%

2012

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Fraud on Canadian Cards

• CNP present has grown significantly in

Canada and now represents 60% of

Issuer reported fraud

• The key factors that contribute to

growth in CNP fraud are:

– Global fraud migration from card

present to card not present

– Low merchant adoption of Visa

CNP risk tools (CVV2, AVS, VbV,

consumer alerts)

– Reliance on static data (Username,

password, PAN, expiration date

and CVV2)

– Growth in accounts with fraud at

low ticket and digital good

merchants who’s business models

support high CNP fraud levels

Growing CNP fraud

1

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Source: Canadian Bankers Association (2009). Payment Card Partners Working Group (VISA Canada; MasterCard Canada; American Express Canada). Data for period ending December 2012.

2007 2008 2009 2010 2011 2012

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Source: Visa Fraud Incident Tracking (FIT),Compromised Account Management System (CAMS); Visa Europe

Network Intrusions Are Rising

as Fraudsters Shift Tactics

Five to watch for: Franchisees. eCommerce merchants. A wider geographic

target zone. Large ATM cash outs. Low difficulty attacks.

Increasing and shifting

data compromises

2

+38% +33%

+73%

+36%

+19%

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Device Security

Payment Service Provider Model

Rules and Regulations

Emergence of the Mobile POS

New Products and Players are Introducing New Risks

New products, services

and technologies

4 New players, third

parties, and emerging

markets

3

Note: All brand names and logos are the property of their respective owners and the

above-mentioned reference does not imply product endorsement.

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A layered approach

Build and enhance stakeholder trust in Visa as the most secure way to pay and be paid

Our Strategy

Trust and Partnership

ADVANCE Execute risk strategies for emerging products and channels

PREVENT Minimize fraud in the payment

system

PROTECT Protect

vulnerable account data

RESPOND Monitor and

manage events that occur

!

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PREVENT Minimize fraud in the payment

system

PROTECT Protect

vulnerable account data

RESPOND Monitor and

manage events that occur

Our Strategy

A layered approach

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RESPOND Monitor and

manage events that occur

PROTECT Protect

vulnerable account data

PREVENT Minimize fraud in the payment

system

!

• EMV chip

• Verified by Visa

• Visa Advanced Authorization

• CyberSource

• Visa Consumer Authentication Service

Dynamic Authentication

Intelligent Authorization

Data Security

Data Elimination

Breach Response

Cardholder Empowerment

Shrink Zone of Impunity

• Non-storage

• Encryption, tokenization

• PCI standards

• Payment gateways

• Proactive Alerts (CAMS)

• Transaction Alerts

• Law enforcement support

• Chargeback & Fraud programs

• Global Brand Protection programs

A layered approach

Our Strategy: We have the

Tools

A layered approach

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Payment Methods

Traditional and Virtual

Rewards

Currency

Rewards

and Offers

Mobile

E-Commerce

Face-to-Face

Social Media

Payment

Channels Payment

Methods

Our Strategy: Moving

Forward In a converged world, security must Advance

Note: All brand names and logos are the property of their respective owners and the

above-mentioned reference does not imply product endorsement.

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Authentication Strategy

Move towards dynamic, risk-based authentication methods that:

1.Optimizes consumer experience

2.Reduce false-declines while minimizing fraud losses

3.Enables flexibility and global interoperability

4.Facilitate an enhanced exchange of data between stakeholders to drive better analytics, decisioning, and consumer personalization

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eCommerce Authentication Balancing Between Strength and Friction

1. Uses a rich data set to risk-score each transaction

2. Allows a large majority of transactions to occur without overt consumer authentication

3. Triggers additional authentication on higher risk transactions only

4. Incorporates dynamic authentication data into the CNP channel

A new approach

How to balance stronger authentication while

minimizing friction?

Introduce enhanced, risk-based authentication methods in

streamlined, easy to use tools

Stronger authentication typically means

added friction

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Enhanced Fraud Risk Detection Visa Consumer Authentication Service

A common risk-detection infrastructure that supports both existing

and new/emerging data sets to provide enhanced analytics and

decisioning to all stakeholders

Device Information

Wallet information

Enhanced fraud risk protection tomorrow

Information known

• Account transaction history

• Merchant details

• Confirmed fraud and chargebacks

• Compromise-related information

Information known

• Device ID

• IP address

• Mobile phone number

• Geography / location

• Device authentication status

Information known

• Login method/ patterns

• Wallet-level spend patterns

• Transactions across multiple cards

• Wallets sharing the same address

“Visa Dynamic Network Analytics”

• Secure authentication solutions with a lighter touch for merchants, issuers, and shoppers

+ = + Fraud Prediction Today

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Visa Consumer Authentication Service

• Incorporates enhanced fraud risk detection triggering additional cardholder authentication only for the highest risk transactions

• Integrated mobile support supports a wide range of consumer devices including mobile phones and tablets

• Supports all payment brands that offer 3D Secure programs

Visa Consumer Authentication Service is a hosted 3D Secure Access Control Server that delivers multiple layers of protection against e-commerce fraud

• Reduce abandonment and improve authorization approval rates for 3D Secure transactions by removing friction at point of purchase

• Reduce fraud by minimizing consumer prompts and migrating towards dynamic cardholder authentication methods

• No impact on merchants

Key Benefits:

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Risk Management Needs to Get Smarter

Authentication

Elimination & Encryption

PCI DSS Compliance PCI DSS

Compliance

Elimination & Encryption

Authentication

Static Dynamic

• Use multiple security layers

• Promote flexibility

• Deploy dynamic authentication

• Use risk scoring to minimize impact to checkout

• Take merchants out of harm’s way

Smart Network

Smart Authentication Today Tomorrow

Smart Authentication + Smart Network = Prevention

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Responsible Innovation

| Convenience Security

The right balance helps fuel growth

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Empower consumers and promote trust

through security awareness

Build momentum

through

execution

Partner with

clients and

stakeholders

Engage

policymakers

constructively

Establish a

common

vision

Trust and Partnership are the indispensable elements

Security Is a Shared Responsibility . . .Everyone Has a Role to Play

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Call to Action

Use the tools in our toolbox to Prevent, Protect and Respond

• Dynamic authentication

• Intelligent authorization

• Powerful security

• Intelligent response

Advance risk strategies to secure the innovations of tomorrow

• Leadership

• Collaboration

• Growth

Build Trust and Partnership with key stakeholders to combat fraud and mitigate risk

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Thank you!

Gord Jamieson Visa Canada Payment System Risk gjamieso@visa.com

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