New Ideas, Next Steps for Credit Unions

Tokenization, NFC & Apple Pay

TODAY’S PRESENTERS

CAROLINEWILLARD Executive Vice President,

Markets & Strategy

CO-OP Financial Services

MICHELLETHORNTON Manager – Core Products

CO-OP Financial Services

With Special Guests:

SUNNYWALIA Visa Strategy

Visa

RITARAMIREZ Vice President, Emerging Payments

MasterCard

AGENDA

Apple Takes a Bite out of Payments

What Is Tokenization, Anyway?

Why Members Will Love It – And Where It Might Lead

How Do Credit Unions Get in?

Your Message to Members

1

2

4

5

3

Questions? 6

APPLE TAKES A BITE OUT OF PAYMENTS

HOT TOPIC

5

We’ve created an entirely new payment

process and we call it Apple Pay.”

“ Tim Cook CEO, Apple September 9, 2014

APPLE PAY IS (ALMOST) HERE

› Announced Sept 9

› iPhone 6 and 6 Plus hit the market September 19, both will support NFC/touch ID payment and in-app payments through Apple Pay

› Apple sold more than 10 million new iPhone 6 and 6 Plus models over the weekend, breaking company records

› Apple Pay released in an October software update

› iOS 8 released Sept 17

› iWatch: out in 2015

APPLE’S ROLLOUT TEAM

PA

RTIC

IP

AT

IN

G

CA

RD

S

PA

RTIC

IP

AT

IN

G

BA

NK

S

CO

MIN

G S

OO

N

ACCEPTED WHERE?

MERCHANT LOCATIONS

INCLUDING:

iTUNES ACCOUNTS – MANY WITH YOUR CARDS IN THEM

WHAT ABOUT THE 8,870,000 OTHER U.S. MERCHANTS?

& say “NO”

Will it work with Square?

Retailers need NFC at point of sale: Less than 10 percent currently do

RIVAL WALLETS RESPOND

10

WHAT ABOUT ANDROID?

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THE BIG NEWS

Apple Pay has created instant awareness and interest.

WHAT IS TOKENIZATION, ANYWAY?

GET THE FACTS

TOKENIZATION FEATURES

› Card number replaced by randomly-generated “token”

› Specific to the phone or merchant

› Changes the game for data breaches

› Token can be disabled with card still protected

› Process is effortless to consumer

› Credit union authorizes with actual card number

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TOKENIZATION

MERCHANTS ISSUERS YOU?

WHO’S IN?

Tokens can be processed by all

participants in the payments ecosystem.

Payment tokens map back to the

underlying account, providing issuers

with full transaction details.

Yes, but you must enroll

SECURITY ON APPLE PAY

› Touch ID authentication on iPhone

› Two-factor authentication on iWatch

› NFC terminal encrypts information

› Tokenized transaction

› PAN remains hidden

› Apple does not see/store transaction information: enhanced privacy

HOW TOKENIZATION HELPS YOU

› Improves merchant security

› Hides PAN information

› Frustrating for hackers

› Minimizes fraud loss

› Reduces need for replacing plastic

WHAT MEMBERS WANT

WHY MEMBERS WILL LOVE IT – AND WHERE IT MIGHT LEAD

TO WALLETS AND BEYOND

MOBILE IS MOMENTUM

Source: Javelin Strategy Mobile Payments Market: Tablet Payments Surge as Overall Mobile Retail Sales Top $60 Billion

IN-SECURITY IS AN OBSTACLE

Security Privacy

TOP CONCERNS OF CONSUMERS WHO DON’T MAKE MOBILE PAYMENTS

Source: "Driving Value and Adoption of Mobile Payments -- Consumers Want More," Accenture, 2013

340

BILLION

$18 MILLION

13.1

NEW CHALLENGES TO SAFETY

Source: Javelin Strategy, 2014 Identity Fraud Study, study of credit card issuers, Payment Card Data Security Report

between 2010 and 2012

outscore retailers in card security

victims of identity fraud in 2013

IDENTITY FRAUD

in losses annually

PERCENT

UP

CARD BREACH-RELATED FRAUD

FINANCIAL INSTITUTIONS

THE APPLE EXPERIENCE

ACTIVATING MOBILE WALLETS

› Will Apple Pay inspire consumers to try, use mobile wallets?

› Will it inspire consumers to try other wallets?

› Is this a warm-up for an “immersive” mCommerce experience?

› Will mCommerce become widespread – and fast?

NFC: TIME AT LAST?

Capability will rise with EMV terminal adoption

Apple Pay may spark activation of terminals

NEAR-FIELD COMMUNICATION

“TAP-AND-PAY”

Source: Mark Hung, analyst at Gartner, quoted in Reuters, "Apple gives NFC chip technology a prized seal of approval," September 10, 2014

550 MILLION

NFC-enabled devices in 2014

10 PERCENT

of retail POS uses NFC

LESS THAN

EMBRACING

HOW DO CREDIT UNIONS GET IN?

NUTS AND BOLTS

APPLE PAY: CAN YOU PLAY?

HOW CLOSE ARE WE?

THREE STEPS TO IMPLEMENTING TOKENIZATION

1

2

3

Check with your PIN networks to see if they are ready.

Enroll your BINs.

Let your members know.

ECONOMICS

Cost will be higher.

Savings in fraud and card reissuance may offset higher costs.

Pricing is still being worked out.

CO-OP IS ON IT

Enrollment Processes

New world of Apple

Defining what is ready

among partners

Pricing, contracts,

testing

Leveraging

other technologies

TOKENIZATION IN CONTEXT

› Tokenization fits into CO-OP’s overall strategy; it doesn’t disrupt our strategy

› Tokenization isn’t meant to replace anything, but rather to enhance security and convenience for most at risk payments

› Not a replacement for EMV. Remember:

› EMV is for cards

› Tokenization for digital payment

+

KEEPING YOU INFORMED

Apple Pay has accelerated interest in tokenization.

CO-OP will keep you informed on new developments and opportunities:

www.co-opfs.org/tokenization

VISA AND MASTERCARD RESOURCES

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Visa Token Service www.visa.com/digitalsolutions

Visa Online – with Visa Token Service content www.visaonline.com

MasterCard Mobile Payment Information

www.mastercard.us/mobilepayments/index.html?cmp=ilc-mc.us.index.thumbnail.MOBILEPAYMENTS

MasterCard Connect – for MasterCard Digital Enablement Service Content

www.mastercardconnect.com

CONNECTING WITH YOUR MEMBERS

SPREAD THE WORD

THE ROAD BEST TRAVELED

DECLARE

Will you take on tokenization? (HINT: Yes)

Are you bullish on mobile payments?

Why is Apple Pay an important product to you?

WILL YOU DO APPLE PAY?

1. Yes

2. No

THOUGHTS ON

MAKE IT EXCITING

Highlight the benefits

Reward & Incentivize

Play up convenience and security across the board

Be part of the Apple experience

Q&A

WHAT DO YOU WANT TO KNOW?