CWAG | January 31, 2013 CONFERENCE OF WESTERN ATTORNEYS GENERAL | SANTA MONICA CA Preventing Transactional Crime: Visa’s role as a payment network Alex.

CWAG | January 31, 2013

CONFERENCE OF WESTERN ATTORNEYS GENERAL | SANTA MONICA CA

Preventing Transactional Crime: Visa’s role as a payment network

Alex Miller, Associate General Counsel, Visa Inc.

2CWAG | January 31, 2013

The Visa Inc. Organization

• Global public company (NYSE: V)

• Headquartered in San Francisco– Major US operations in Ashburn, VA; Denver, CO; Miami, FL; and

Foster City CA– ~8,500 employees worldwide

• Visa Inc.’s “clients” are issuing/acquiring financial institutions and indirectly, their cardholder and merchant customers

• Visa Inc. derives revenue primarily from fees paid by financial institution clients; fees based on volume, transactions and other services provided

Visa is a global payments technology company that connects consumers, businesses, banks and governments enabling them to use digital currency and leave cash and checks behind

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Visa’s Role: A Payments Network

• Provides processing and operational systems

• Sets standards and rules for financial institution clients

• Develops products

• Provides risk management

• Builds and manages global brand

• Develops new market opportunities (acceptance)

Issuing Banks• Issue cards

• Assume cardholder’s credit risk

• Set and collect card fees and interest rates

• Provide customer service for consumers

Acquiring Banks• Sign up retailers

• Provide processing

Manage authorization, capture and settlement

• Generate recurring reports/statements

• Provide customer service for retailers

4CWAG | January 31, 2013

Visa is Not…

NOT just a “credit card company” We process transactions across a variety of products. In fact, for the four quarters ended June 30, 2010, the majority of global payments transactions on Visa’s network were on debit products.

NOT an issuerThe transactions that run over our network — debit, credit, prepaid and money transfers — are on products issued by our financial institution clients directly to cardholders.

NOT a bank or lenderVisa does not issue cards, set cardholder rates, extend credit or send solicitations to consumers. Card rates, fees and cardholder relationships are exclusively the responsibility of the issuing financial institution.

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Visa adheres to the USA PATRIOT Act

Visa requires AML Programs of Clients

Visa conducts Due Diligence on Clients

New payment products / innovations: − Visa Prepaid Program Controls

1|

2|

3|

Visa has a multi-layered compliance and control framework that encompasses four key areas:

4|

Visa’s Multi-layered Compliance Approach

6CWAG | January 31, 2013

Closed-Loop vs. Open-Loop Prepaid CardsTwo basic types of prepaid cards are available. The main difference is where and how the card can be used

• Also known in the industry as Network Branded prepaid cards display the logo of the brand (e.g. AMEX, Discover, MasterCard and Visa)

• Issued by highly regulated Financial Institutions (BSA requirements, OFAC, AML, etc.)

• Can be used at multiple merchant locations, generally wherever network brand is accepted

• Various types of prepaid products and based on the type offer POS and/or cash access

• May be non-reloadable or reloadable; personalized or non-personalized

Closed-Loop

Open-Loop

• Issued by a single merchant• Financial Institution is not involved (no BSA, AML requirements required today)• Non-personalized, pre-denominated dollar amount• Value associated with card is only redeemable at retailer for goods or services they

sell (POS only, no cash access)• Tend to be non-reloadable and gift cards

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Types of Visa Prepaid Products

Unlike closed-loop cards, Visa branded cards consist of various types of products with different value propositions, benefits, and functionalities

Prepaid Products by Funding Source

• Payroll• Incentive / Rebate / Loyalty • Commercial Spend• Employee Benefits• Health: FSA, HRA, HSA• Insurance Claims• Worker’s Compensation

• General Purpose• Gift• Travel• Parents of Youth/Teens• Cross Border Remittance

• Child Support• Unemployment• Social Security• Tax Refunds• Disaster Relief

CONSUMERCONSUMER CORPORATE CORPORATE GOVERNMENTGOVERNMENT

*FSA (Flexible Spending Account), HRA (Healthcare Reimbursement Arrangement), HSA (Healthcare Savings Account)

8CWAG | January 31, 2013

Visa Prepaid Cards Are Issued by Financial Institutions

• All Visa prepaid cards issued in the U.S. are issued by banks, all U.S. banks are subject to the Bank Secrecy Act (“BSA”), and all U.S. banks are examined by federal and/or state banking agencies for compliance with the BSA.

• Unlike stored value card products, no funds are actually stored on the cards. Rather, like debit cards, which are exempted from FinCEN’s proposed rule on cross-border reporting requirements,1 all funds associated with Visa prepaid cards are held in accounts or subaccounts at the issuing bank, 76 Fed. Reg. 64,049 (Oct. 17, 2011).

• All Visa prepaid cards are structured so that the underlying funds are treated as “deposits” for purposes of Federal Deposit Insurance Corporation (“FDIC”) deposit insurance. To secure this deposit insurance coverage, issuing banks are required to collect identification information on the owner of the funds.

• Regardless of whether an issuing bank holds the underlying prepaid funds in an “account” or in a “subaccount,” the issuing bank is obligated to know its customer. Therefore, there is no customer anonymity with respect to prepaid cards if those cards can be reloaded or used for access to cash.

1 76 Fed. Reg. 64,049 (Oct. 17, 2011).

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4| Visa Prepaid Program Controls

Global Prepaid Controls and Rules

• Registration – Financial Institutions must submit and obtain approval for all Visa prepaid programs via a PIF (prepaid information form)

• Load Limit - $1,000 maximum if cardholder is not known or has not passed KYC

• KYC – Required for cash access and reloads*; Otherwise only good for purchases

• Cross-Border Access – Restricted on majority of U.S. non-reloadable cards (and therefore only usable within country of issuance)

• Reselling Cards- Visa does not allow cards to be resold (e.g. websites)

• Unique BINs & Product Identifiers – Ability to report and monitor by product type (gift, general purpose, government, etc.)

Onsite Reviews – U.S. Prepaid Issuer Risk Program

• Since 2006, Visa conducts onsite/offsite reviews to ensure FIs have appropriate controls in place with their third-party agents (e.g. program managers)

* Exceptions exist and are allowed where local country laws differ; Variance for reloads without KYC have been allowed in the transit segment but cash and cross-border access is restricted

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U.S. Issued Visa Prepaid Card StatisticsInternational Cash Access / Usage

Source: VisaNet, CY2012 ; US territories included as International volume

Statistics are inclusive of all Visa prepaid cards including Visa TravelMoney that is designed for travel

98.64% of total prepaid volume (POS & Cash) takes place in the U.S.

97.92% of all total prepaid cash volume takes place in the U.S.

CY 2012, the top four countries where cash was accessed from U.S. issued prepaid cards: Mexico, Puerto Rico, Russia, United Kingdom

− 65% of the cash usage in Mexico and Puerto Rico is initiated by government disbursement prepaid cards

CY 2009-2011 trends show that cash access by U.S. issued cards used outside of the U.S. has stayed relatively flat (-1%), as volume of cards has increased approx. 15% (CAGR)

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Continued Efforts

• Since 2009, Visa has met with various law enforcement groups within Department of Homeland Security (ICE, Border Patrol, etc.) to understand law enforcements questions and concerns regarding prepaid cards

• Early 2012, Visa issued first law enforcement newsletter about prepaid cards. Working in conjunction with ICE to develop training for field agents

• Regular dialogue between law enforcement and industry is critical to ensure products are not being misused and appropriate level of regulation is in place