Traditional magnetic swipe card, common in the U.S. EMV “smart” microchip payment card CARD FRONT CARD BACK Magnetic stripe Contact pad with embedded chip CANADALATIN AMERICACARIBBEAN 49.2% 78.5% ASIA PACIFIC 26.7% 50.5% AFRICA MIDDLE EAST 28.6% 76.7% EUROPE ZONE 1 80.7% 94.5% EUROPE ZONE 2 15.5% 73.2% Percentage of all payment cards that have EMV chips Percentage of all payment terminals using EMV standard Most payment cards in the U.S. only have a magnetic stripe that is swiped at a payment terminal during a trans-action. Most chip cards are “contact” smart cards, which require the card to be inserted into a payment terminal. A magnetic stripe is also on the back, but some countries are removing this to prevent fraud. The United States — a slow adopter of chip cards because fraud rates have been relatively low — mainly uses magnetic stripe and signature for payment authorization, although some banks and card companies now offer chip cards upon request. Starting in 2015, Visa and MasterCard plan to start migrating to chip technology.Outside of the United States., in countries where fraud rates have been historically much higher, such as in the U.K., more than 1.6 billion payment cards, 44.9 percent of all payment cards, are now using chip technology. Card distribution by regionIn millions 401 755 46 50 372 Information recorded by a retailer when card is used: Information recorded by a retailer when card is used: • Cardholder’s full name.• Primary account number.• Card’s expiration date.• Country code. • A unique transaction number, called dynamic authentication, is for- warded to the cardholder’s bank. Merchants cannot link to an account number. Global adoption rates of chip cards In 2002, three types of card fraud — counterfeiting, lost or stolen cards, and cards stolen while in transit (mail non-receipt) — accounted for more than $500 million, or 74 percent, of all fraud losses inflicted to merchants and card issuers. As the U.K. fully migrated to chip cards by 2006, the new cards were effective at drastically reducing those types of crimes, which resulted in criminals shifting to other fraudulent activity. By 2012, phone, Internet and mail order fraud (known as card not present), and card identification theft fraud accounted for more than $450 million, or 72 percent, of all losses. Losses attributable to card not present fraud are recently on the decline as online merchants are employing more secure payment verification services, such as 3d Secure by Visa and Mastercard. Chip cards' impact on fraud in the United Kingdom ’02 ’12 ’02 ’12 Counterfeiting Counterfeiting Mail non-receipt Card ID theft Card not presentLost or stolen Lost or stolen Card ID theft Mail non-receipt Card not present £149 £108 £21 £37 £110 Currency in millions of pounds As a percentage of total losses Fraud losses peaked in 2008 aslosses from non-chip transactions such as e-commerce, skyrocketed. LOSSES BY TYPE OF FRAUD, TRENDS SIMILAR AROUND THE WORLD U.S. LAGS BEHIND THE WORLD TWO TYPES OF BANKING CARDS % CHG SINCE 2002 £42 £55 £32 £13 £246 –72% –49% +56% –66% +123% 26% 26% 35% 9% 5% 63% 8% 11% 14% 3% E-commerce Chip card migration Internet, mail order and phone fraud. Cardholder and card are not present during transaction. U.S. Data not available because numbers are too low. FRAUD LOSS TRENDS As countries migrate to chip cards, domestic losses typically decrease. But fraud rates for some countries, such as the Netherlands and France, have actually increased because they either adopted the EMV standard much later than other countries or they experienced significant increases in cross-border fraud. Total cost of card fraud $0.00 $0.04 $0.08 $0.12 Total losses from global card fraud Fraud losses per $100 value of transactions* *Debit and credit cards only In billions of dollars $10 $6 $2 ’04 ’05 ’12 ’06 ’08 ’10 $11.3 $4.2 The U.S. accounts for nearly 30 percent of all charges — both in-store and online. It had 47 percent of all losses, or $5.3 billion, stemming from all types of fraud in 2012. Rest of world U.S. UK France Canada Australia Netherlands Spain Singapore –36% U.S. +10% +40% –14% +150% +100% –33% –75% SELECT COUNTRIES http://www.financialfraudaction.org.uk/publications/#/9/zoomedhttp://www.financialfraudaction.org.uk/publications/#/12/zoomedhttp://www.theukcardsassociation.org.uk/Advice_and_links/http://www.financialfraudaction.org.uk/cms/assets/1/04102013%20financial%20fraud%20action%20uk%20half%20yearly%20fraud%20figures.pdfhttp://www.frbatlanta.org/documents/rprf/rprf_pubs/120111_wp.pdfhttp://www.datacard.com/downloads/ViewDownLoad.dyn?elementId=repositories/downloads/xml/WP_Adoption_of_EMV_in_US.xml&repositoryName=downloads&index=1http://www.mastercard.us/mchip/faq.htmlhttp://ficousfraudmap.com/ 0 50 100 150 200 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 AustraliaNew ZealandGreater ChinaJapanNorth KoreaSouth KoreaMongoliaIndiaSri LankaBangladeshBhutanNepalSouth and South-East Asia CanadaMexicoCentral AmericaSouth AmericaCarribbean AfricaMiddle EastLevant AndorraAustriaBelgiumBulgariaCyprusCzech RepublicDenmarkEstoniaFinlandFranceGermanyGibraltarGreeceGreenlandHungaryIcelandIrelandIsraelItalyLiechtensteinLatviaLithuaniaLuxembourgMaltaNetherlandsNew CaledoniaNorwayPolandPortugalRomaniaSlovak RepublicSloveniaSpainSwedenSwitzerlandTurkeyUK AlbaniaArmeniaAzerbaijanBelarusBosnia and HerzegovinaCroatiaGeorgiaKazakhstanKyrgyzstanMacedoniaMoldovaSerbia and MontenegroTajikistanTurkmenistanRussiaUkraineUzbekistan ASIAPACIFIC AFRICA ANDTHE MIDDLE EAST EUROPEZONE 1 EUROPEZONE 2 0 100 200 300 400 500 600 700 800 Card fraud in the U.S. Chip and pin card in the UK yvonne info@nilsonreport.com 0 20 40 60 80 100 Much like how your SmarTrip or electronic employee ID cards work, 0 70 140 210 280 350 0 70 140 210 280 350 0 70 140 210 280 350 0 70 140 210 280 350 0 70 140 210 280 350 0 70 140 210 280 350 0 70 140 210 280 350 0 70 140 210 280 350 0 70 140 210 280 350 0 10 20 30 40 50 60 70 80 0.00 0.02 0.04 0.06 0.08 0.10 0.12 0.14 0.16 2002 110.1 314.5 CNP Rest 2012 278 110 CNP Rest 82.1 28.0 77.1 45.0 33.8 117.0 66.1 117.1 58.2 154.5 112.2 178.3 146.7 181.7 113.2 153.2 91.8 135.1 81.3 139.6 105.6 140.2 0.00 0.03 0.06 0.09 0.12 0.15 Europe zone 1 UK US France The UK fully migrated to chip cards in 2006. $0.00 $0.04 $0.08 $0.12 ’05 ’12

SOURCE: “The U.S. Adoption of Computer-Chip Payment Cards: Implications for Payment Fraud” by Richard J. Sullivan, Nilson Report; Federal Reserve Bank of Kansas City; Douglas King, Federal Reserve Bank of Atlanta; Financial Fraud Action UK; UK Cards Association..