©2012 Discover Financial Services LLC Confidential & Proprietary 1

EMV in the U.S.

Troy Bernard Global Head of Chip Payments Discover Financial Services, LLC May 11, 2012

©2012 Discover Financial Services LLC Confidential & Proprietary 2

EMV Global Penetration

Canada, Latin America, and the Carribean

Asia Pacific

31.2% of cards 76.5% of terminals

73.9% of cards 89.0% of terminals

17.6% of cards 60.7% of terminals

27.0% of cards 43.0% of terminals

12.7% of cards 65.4% of terminals

* Figures reported as of Q1, 2011 and represent the latest statistics from American Express, JCB, MasterCard, and Visa, as reported by their member financial institutions globally. Figures do not include data from the United States

Africa and the Middle East

Europe Zone 1

Europe Zone 2

United States

Over 1 Billion EMV cards in market

For a global network, EMV support is table stakes

1. The Nilson Report, #989, March 2012. 2. The map denotes countries or territories with transactional activity in the last year. 3. Total reflects the number of merchant outlets that accept one or more card brands. 4. Estimated enablement of Rupay, year-end 2012

Third largest global card acceptance network1

Operates in over 185 countries / territories1

Over 840,000 ATMs in more than 100 countries2

95% ATM parity in US Contactless POS parity in

the US

North America

8.8MM

Latin America

2.9MM

EMEA

2.0MM

Asia Pacific

7.1MM

TOTAL

20.8MM

Discover® – Our Global Payments Evolution

1986

2004

New network in an established card market.

Acquisition of PULSE®, the 3rd largest PIN/ATM debit network in U.S. Partnership with China’s largest issuer, CUP.

2010

Partnership with South Korea’s largest issuer.

2008 2010

Partnership with Serbian issuer.

2007 2005

2004 – Landmark DOJ Ruling

Partnership with Japan’s largest issuer.

Link, U.K. ATM partnership

2006

Acquisition of Diners Club with acceptance in over 185 countries / territories.

2009

Interac ABM partnership.

2011

100 countries for global ATM acceptance.

2012

Partnership with India’s national network. Puerto Rico issuance.

©2012 Discover Financial Services LLC Confidential & Proprietary 5

Discover’s EMV Momentum

Global Progress: 3+ years of global deployment All regions of the world 90+ engagements slated in 2012 Over 1 million cards already in market Supported by all networks (Discover,

DCI and PULSE)

Discover® – North America Mandate (D-PAS)

U.S, Canada and Mexico

Acquirers and Direct-Connect Merchants

April, 2013 – Compliance for D-PAS

Card Authentication: Online or Offline

Chip & Pin or Chip & Signature verification

Supporting choice – channel and security

Contactless D-PAS specification preview

©2012 Discover Financial Services LLC Confidential & Proprietary

North America - D-PAS Timeline

Q4, 2012 – Contactless D-PAS Auth & Settlement Data Requirements Released in 12.2 Specs – New contactless “flags” for existing D-PAS data elements will be formally published

Apr, 2013 – Processor Compliance

– U.S. acquirers, acquirer processors, and direct-connect merchants must support network data required to support contact and contactless chip transactions

– Merchants and Issuers are NOT mandated to deploy D-PAS in terminals and cards – Will be part of the bi-annual Business Enhancements Release for acquirer processors to certify

Oct, 2015/2017 – Liability Shift (details not yet announced)

– Discover supports the most secure transactions possible – Details will be forthcoming

Alignment with Industry

– Aligned to industry implementation parameters and timeframes to minimize disruption – Same timelines as Visa and MasterCard. No response from American Express

2012 2013 1/1/2013 2014 2015 2016 2017

4/19/2013 Processor

Compliance

10/1/2015 Liability Shift

(Except Petro)

10/1/2017 Liability Shift for Petro Merchants

Q2 2012 Contactless

Data Elements Published in 12.2

©2012 Discover Financial Services LLC Confidential & Proprietary

Building an EMV program

Card Specifications Payment applications Functional test cases Functional test lab Functional qualification

agreements Security requirements Security test lab Security testing agreements Type approval procedures Type approval agreement Terminal Specifications Terminal testing requirements Registered Application ID Certification Authority

Specification license agreements Personalization profiles Personalization validation test

plans Personalization validation

procedures Card image requirements Root key generation Policies and procedures to

register security officers Policies and procedures to review

security officer requests Policies and procedures to upload

issuer keys for signing Policies and procedures to

review/approve key signing requests

Test requirements Issuer host testing Acquirer host testing Clearing testing

End-to-end testing Production validation testing Test cards for all testing requirements Test tools (card testing, terminal testing,

host testing) Test tool qualification procedures Test tool licenses Issuer Implementation Guide Acquirer Implementation Guide Merchant Implementation Guide Key Management Guide Certification Guide Test Plans Enhanced authorization and clearing

interfaces Enhanced testing and certification

environment Changes to disputes rules and

procedures

Discover spent 3 years building its EMV capabilities before being market-ready

Anatomy of a traditional EMV transaction

Contact Chip

1. Insert contact EMV card in terminal 2. Validate D-PAS AID present in card and terminal 3. Initiate D-PAS card applet and read terminal data

Options: •Offline PIN •Offline Authorization

Using rules set by Issuer (chip) & Acquirer (Terminal), a decision is made to:

Contact Card Slot

Chip Contains: •Account data •D-PAS applet & Application ID# (AID) • Unique encryption key for each card • Offline PIN (optional) • Record of last few transactions • Offline floor limit

Terminal Contains: • Generic EMV kernal (V/MC/Amex/D) • D-PAS AID • D-PAS Public Key • D-PAS Terminal Parameters

Options: • Online PIN • Online Authorization

Issuer Considerations

When do I start my EMV program? – Early adopter / global traveler – Wait and see

Build vs Buy? – Card management – Customer service – Card personalization – EMV data validation and cryptogram generation

Key Implementation Decisions

– SDA, CDA, or DDA cards – Online vs. offline authorization – PIN vs. signature

Online PIN or offline PIN

©2012 Discover Financial Services LLC Confidential & Proprietary 11

Thank You!