1. EC Fraud Prevention Expert Group - Brussels, 28 November 2006 1 Implementing the SEPA Cards Framework (SCF): Towards greater security for card payments Cédric SARAZIN Chairman of EPC Card Fraud Prevention Task Force Development & Strategy Director, Cartes Bancaires CB

2. EC Fraud Prevention Expert Group - Brussels, 28 November 2006 1- Card fraud prevention: need for a cooperative approach

3. EC Fraud Prevention Expert Group - Brussels, 28 November 2006 3 Card fraud in SEPA: some facts Approximately 10 million fraudulent transactions per year in the SEPA area affecting 500,000 merchants and representing roughly 1 billion losses for the banking industry Scale, extent and level Pan-European issue Card fraud damages image of banking industry and acceptance of electronic payment instruments Fraud prevention: within the cooperative space, and a societal obligation for all stakeholders

4. EC Fraud Prevention Expert Group - Brussels, 28 November 2006 4 EPC approach to fraud prevention An essential, if not paramount, ingredient needed to build the SEPA is the degree of Trust and Confidence perceived by all the parties involved in a card transaction. (…) There should be a concerted effort to attain a uniform level of equipment in the different zones of SEPA, so that any cardholder who wishes to pay with a card is provided with the same facility, and the same level of security, in each of the different Member States. Source: EPC Cards WG Findings & Recommendations, Jan. 2003

5. EC Fraud Prevention Expert Group - Brussels, 28 November 2006 5 EPC Cards WG Recommendation Nr. 1, January 2003 The banking industry should reinforce actions to prevent and combat fraud through active co- operation between banks, card schemes, retailers, the Eurosystem, the European Commission, law enforcement authorities, governments, and other stakeholders. Minimum security standards (including EMV chip) and a common approach for tackling fraud will be defined, and their implementation monitored.

6. EC Fraud Prevention Expert Group - Brussels, 28 November 2006 6 EPC Card Fraud Prevention TF Task Force of EPC Cards WG Created in March 2003 Participation of ECB, EC, and card schemes EPC Forum on Fighting Card Fraud across Europe, Paris, 8-9 October 2003 Industry Battle Plan to combat card fraud EPC Resolution on Fighting and preventing card fraud across Europe (approved in Dec. 2003) Participation in EU Fraud Prevention Experts Group

7. EC Fraud Prevention Expert Group - Brussels, 28 November 2006 7 Fighting and preventing card fraud across Europe: actions completed European antifraud database opportunity and feasibility study Consolidated security standards and procedures: –European antifraud toolkit –EMV implementation snapshot –Inventory of standardisation initiatives Strengthen EPC involvement in the EU Fraud Prevention Experts Group Best practices section on EC website

8. EC Fraud Prevention Expert Group - Brussels, 28 November 2006 8 Types of Fraud 2 very different phases: Attack (Data Capture) –Theft of card –Compromise of card details & PIN –etc. Usage (Misuse) –Use of stolen card –Use of manufactured counterfeit –etc. Need to react / prevent at every level –Prevent – Identify – React – Limit consequences – etc.

9. EC Fraud Prevention Expert Group - Brussels, 28 November 2006 2- EMV roll-out: migration status in SEPA EPC figures as of end September 2006 (Q3 2006)

10. EC Fraud Prevention Expert Group - Brussels, 28 November 2006 10 EMV roll-out: status in EU-25 As of end September 2006: 50.0% of payments cards (debit & credit) 47.1% of POS terminals 56.6% of ATMs … had already been converted to EMV Source: EPC quarterly EMV Implementation Snapshots

11. EC Fraud Prevention Expert Group - Brussels, 28 November 2006 11

12. EC Fraud Prevention Expert Group - Brussels, 28 November 2006 12 EMV Migration in EU25: Cards % in EU25 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Q1 04Q2 04Q3 04Q4 04Q1 05Q2 05Q3 05Q4 05Q1 06Q2 06Q3 06Q4 06Q1 07Q2 07Q3 07Q4 07Q1 08Q2 08Q3 08Q4 08Q1 09Q2 09Q3 09Q4 09Q1 10Q2 10Q3 10

13. EC Fraud Prevention Expert Group - Brussels, 28 November 2006 13 EMV Migration in EU25: POS % in EU25

14. EC Fraud Prevention Expert Group - Brussels, 28 November 2006 14 EMV Migration in EU25: % of EMV ATMs in EU25

15. EC Fraud Prevention Expert Group - Brussels, 28 November 2006 15 EMV accompanying measures Implementation monitoring by EPC Card Fraud Prevention Task Force: Overview of EMV liability shift rule implementation (deadline 01-01-2008): not only for cross-border transactions, but also for national transactions! Overview of EMV transactions and magstripe fallback rates at POS/ATMs: comparison with EMV implementation snapshot; identification of possible issues Overview of EMV acceptance holes: best practices to convince petrol and vending sectors to migrate; overview of terminal types present in SEPA

16. EC Fraud Prevention Expert Group - Brussels, 28 November 2006 3- Latest EPC initiatives in the area of card fraud prevention

17. EC Fraud Prevention Expert Group - Brussels, 28 November 2006 17 Card fraud prevention: 3 new axis of work (1/3) 1.Issue: problems at POS & ATMs with magstripe fallback on EMV transactions Proposal: shift the liability of fraud losses in case of EMV magstripe fallback from the issuer to the acquirer as from 1st January 2008 for ATM transactions. Consider a similar measure on POS transactions at a date to be defined.

18. EC Fraud Prevention Expert Group - Brussels, 28 November 2006 18 Card fraud prevention: 3 new axis of work (2/3) 2.Issue: fast increasing CNP fraud Proposal: card schemes to mandate as from 1st Jan. 08: - acquirers to acquire and transmit CVX2 values for e-commerce transactions - issuers to decline any authorization request made with a false CVX2 and any authorization request not carrying a CVX2 value for those transactions. Proposal: card schemes to analyse a similar rule for MOTO transactions. Proposal: card schemes to incentivise 3DSecure implementation by protecting acquirers from liability when the merchant is 3DSecure enabled, as from 1st January 2009.

19. EC Fraud Prevention Expert Group - Brussels, 28 November 2006 19 Card fraud prevention: 3 new axis of work (3/3) 3.Issue: lack of aggregated statistics on card fraud in SEPA; difficulty to monitor trends Proposal: collection of aggregated statistics on card fraud in SEPA through card schemes and using the intermediary of the ECB as a trusted third party; fraud categories = those currently commonly used by international schemes (Lost & Stolen; Card Not Received; Counterfeit; Card Not Present; and others).

20. EC Fraud Prevention Expert Group - Brussels, 28 November 2006 20 www.europeanpaymentscouncil.org Thank you for your attention ! cedric-sarazin@cartes-bancaires.com