Canadian EMV Chip Migration. Ron Walsh BMO Bank of Montreal Miami, Florida, USA October 11, 2005

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1 Canadian EMV Chip Migration Ron Walsh BMO Bank of Montreal Miami, Florida, USA October 11, 2005

2 Content Quick Level Set of the Canadian Retail Payment Landscape The drivers for EMV adoption in Canada Canada s s card fraud problem The Industry s s response to fraud, short and long term EMV chip migration moving the industry forward Lessons learned from BMO as an Issuer & ABM Acquirer

3 Quick Level Set of the Canadian Plastic Payment Landscape

4 Canada s ATM and POS Networks Domestic: Interac International: All major ATM brands Debit (Online PIN): 34.7 mil. Interac branded cards) Credit: 57.5 mil. MasterCard, VISA and AMEX cards More than 50,000 ABMs 300 million Interac transactions in billion+ ATM cash dispenses including on-us transactions 546,000 POS terminals with PIN pads at more than 378,000 merchants 2.8 billion online debit transactions in billion online credit transactions in 2004

5 Number of POS Transactions - Annual billion Interac Credit Interac Debit 60% - Credit Card 40%

6 Payment Method Most Used Source: Interac Association. IDP refers to Interac Debit at POS. ABM refers to ATM.

7 Debit at POS Average per year Source: Interac Association

8 Other Facts Interac POS Debit is a non-interchange payment model All major Interac Issuer members also issue MasterCard or VISA

9 The drivers for EMV adoption in Canada

10 EMV Migration Business Driver Mitigation of fraud exploitation from skimming/counterfeiting is the primary driver Other drivers: Cost of fraud Fraud Management Detection tools, Fraud analysts, Corporate Security Impacts on service productivity Law Enforcement Impact on Brand(s) Customer trust Denigrates the reputation of payment system security/integrity Cardholder/Merchant Benefits The card is not relinquished to the merchant PIN replaces signature for Credit Strong 2-Factor 2 Authentication Can also be used for CNP

11 Responding to the Fraud Problem All Major brands and their Members are moving forward with EMV

12 Building Long Term Security through Chip Migration VISA Canada Announced migration to EMV Chip in 2003 Deployment of POS Devices supporting VISA EMV Chip commenced in July 2005 Two issuer members have issued EMV Chip cards 2010 Liability Shift Interac Association is committed to chip migration for Interac Shared Services Target first Interac chip transaction in 2007 Target sufficient cards, ABMs, POS locations converted so that significant fraud reduction is achieved by end of 2010 Develop industry-level migration targets and measures to achieve them MasterCard Canada is committed to support the chip migration strategies of its Acquirer and Issuer members.

13 Protecting Magnetic Stripe through a Renewed Fraud Strategy Today Future Magstripe Both Chip Prevention Reputation Actions that offer a genuine possibility of reducing magnetic stripe fraud risk or losses Actions that protect the brands and bolster confidence in payment card services

14 Chip Migration Strategy Building long-term security, trust & integrity

15 The Path to Chip Migration Technical Specifications National Strategy Roadmap Collaborative Trials Full Roll-out

16 Moving Forward with Chip Implementation While many details are yet to be developed, the industry is moving forward aggressively All needed infrastructure and support in place by end of 2006 at the latest Coordinated chip launch/trial in 2007 No certification of new non-chip ABM or POS device models after December 31, 2007

17 Moving Forward with Chip Implementation Coordinated chip launch/trial in 2007 Allow Members/Brands to test implementations in limited production environment, test communications and educational messages Will be open to all Brands, Acquirers and Issuers ready to process EMV chip transactions Coordination with all payment schemes

18 BMO Lessons Learned As a an ATM Acquirer and Issuer

19 BMO Lessons Learned The is case difficult but there is a one for Chip Skimming/Counterfeit fraud can only get worse Solutions to secure the Magnetic Stripe are expensive, unproven, temporary and do not provide value add options Fraud flows like water, one can t t afford to be last or late Chip provides opportunities for new enhanced services EMV Chip is not a 100 yard dash - it s s a marathon. EMV Chip migration is complex and impacts many business & technical processes EMV Chip expertise is a scarce resource There is steep learning curve

20 BMO Lessons Learned Consider Chip to be an enterprise initiative and align Debit and Credit lines of business There is a much overlap Customers will expect consistent service Keep in mind: PIN Synchronization (Host and Chip) ATM (or POS) new acquisitions. Ensure new devices are at least EMV Level 1 Certified. Need to re-evaluate evaluate in-sourcing vs. out-sourcing options e.g. In-house card personalization Is this core to the business?

21 THANK YOU Ron Walsh Senior Business Architect SmartCards BMO Bank of Montreal (416)

EMV Basics and the market

EMV Basics and the market What is a smartcard? 1 2 3 4 5 2 What is EMV? EMV is the globally adopted international standard for adding a chip on a payment card A chip is a small computer built into the