MULTOS World Series USA February 7, 2013 Salt Lake City · MULTOS World Series – USA February 7, ... The Nilson Report, #989, March 2012 2. The map denotes countries or territories

1 ©2013 DFS Services LLC

Discover® Financial Services

MULTOS World Series – USA

February 7, 2013

Salt Lake City


Agenda

• Payments Industry Overview (Discover Financial Services-centric)

• Networks Make It Possible

• U.S.A. EMV Migration

• D-PAS: EMV Payment Application

• Contactless D-PAS: Contactless EMV Payment Application

Contactless Magnetic Stripe (Zip®)


Discover Financial Services (DFS)

• Discover Card

• Franchise

Diners Club International

• Networks

Discover Network

Diners Club International Network

Pulse Network

• Network-to-Network Partnerships

4 ©2013 DFS Services LLC 4

DFS Overview - 2013 Overview

Payment Services Direct Banking

$116Bn volume

30+ issuers

$154Bn volume

4,300+ issuers

840,000+ ATMS

100+ countries

$29Bn volume

80+ franchises

185 countries/territories

Total Receivables +9% YOY

$48Bn in receivables

Leading cash rewards program

1 in 4 U.S. households

$28Bn direct-to-consumer deposits

$11Bn personal and private student loans

Discover is ranked #1 out of 80 S&P500 financial stocks -

Bloomberg News, Dec. 15, 2011

Total Volume +8% YOY

Note: Balances as of February, 2012; volume based on the trailing four quarters ending 1Q2012

Card Issuing

Lending & Deposits

June 2012- Discover acquired Home Loan Center, adding mortgages to direct banking offerings


5

About Discover ®- Award Winning

1 According to the 2012 Brand Keys Customer Loyalty Engagement Index report

2 According to the 2011 Keynote Competitive Research Industry Study of U.S. credit card marketing websites

3 TNS 2011 Consumer Card Strategies Research

4 Discover Card ranked among the best in identity fraud resolution according to the 2011 Javelin Strategy and Research report

Brand Keys

Award: Ranked #1

in Customer

Loyalty - 16 years

in a row1

#1 website - Best

Overall

Customer

Experience2

America’s #1

Cash Rewards

Program – More

US households

have a Discover

card than any

other cash

rewards card3

Ranked the

best in identity fraud

resolution4

Winner - 2012

Paybefore award for Most

Effective Prepaid

Marketing

Winner - 2012

Paybefore award for Best Youth /

Student / Campus Prepaid

Program

http://www.wachovia.com/


6

1986

2004

Start-up

experience from

setting up a new

network in an

established card

market

Acquisition of

PULSE®, the 3rd

largest PIN/ATM

debit network in

U.S.

2010

N2N

partnership

with BCcard

(S. Korea)

2008 2010

2007 2005

2004 – Landmark

DOJ Ruling

N2N partnership

with JCB (Japan)

2006

Acquisition of Diners

Club International

with acceptance in

over 185 countries /

territories

2009

Interac ABM

partnership

(Canada)

2011

100 countries

for global ATM

acceptance

2012

Partnership

with India’s

national

network

Puerto Rico

issuance

Our Evolution as a Global Payments Network

Link, U.K.

ATM

partnership

Partnership

with DinaCard

(Serbia)

N2N partnership

with UnionPay

(China)


1. The Nilson Report, #989, March 2012

Acceptance: U.S. Footprint

According to Nielson, Discover® has reached essential parity with Visa and

Mastercard1

98% technical acceptance in 2011

Increased merchant locations by 7%

Online acceptance of 98%

Closed gaps via Industry partners and high impact merchant focus

2011 2010 2009 2008 2007 2006 2005


Acceptance: U.S. Online Footprint

Source: Internet Retailer, 2011

Of America’s 500 largest retail websites, Discover has:

97% acceptance (486 sites), remaining 14 sites are on target list

98% coverage of total site sales ($147bn)

Direct relationship with these retailers

100%

100%

97%

97%

50%

100%

100%

99%

99%

31%

Visa

MasterCard

AmEx

Discover

PayPal

Top Retailer Sales


Agenda



• EMV Migration





10

1986

2004

Start-up

experience from

setting up a new

network in an

established card

market

Acquisition of

PULSE®, the 3rd

largest PIN/ATM

debit network in

U.S.

2010

N2N

partnership

with BCcard

(S. Korea)

2008 2010

2007 2005

2004 – Landmark

DOJ Ruling

N2N partnership

with JCB (Japan)

2006

Acquisition of Diners

Club International

with acceptance in

over 185 countries /

territories

2009

Interac ABM

partnership

(Canada)

2011

100 countries

for global ATM

acceptance

2012

Partnership

with India’s

national

network

Puerto Rico

issuance

Our Evolution as a Global Payments Network

Link, U.K.

ATM

partnership

Partnership

with DinaCard

(Serbia)

N2N partnership

with UnionPay

(China)


Global Card: Our Approach

Entrenched Industry Model:

American mega-brands dominate the

market

Emerging Global Model:

Alliances of key regional players are

creating the new global network

Discover® is working to create a new option for global payments

http://www.atosworldline.be/adminV3/ContentManager/display/000/506/600/5066004.jpg

12 ©2013 DFS Services LLC 12

Global Acceptance Footprint

• Third largest global card acceptance network (1)

• Complementary networks with strong global presence

• Operates in over 185

countries / territories( 2 )

• Over 900,000 ATMs in more than 100 countries

North America (1)

8,900,000

Asia Pacific

7,200,000

EMEA

2,300,000

Latin America

3,000,000

Note(s)

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 through Aug. 2012

Total Merchant Locations

21,400,000 (3)


Agenda








U.S. EMV Migration - The Complexity


Comparative Scale of Market Participants

USA 10m PoS

422K ATMs

1.2Bn+ Cards (Debit & Credit)

<1 % EMV Acceptance

China 32m PoS

249K ATMs

2.3bn+ Cards (Debit & Credit)

58% EMV Acceptance

Brazil 4m PoS

190K ATMs

406m Cards (Debit & Credit)

90% EMV Acceptance

USA 6000+ Issuers

100+ Acquirers

China 30+ Issuers

1 Acquirer

Brazil 44+ Issuers

4+ Acquirers

Germany 65+ Issuers

7+ Acquirers

Germany 680K PoS

58K ATMs

122m+ Cards

88% EMV Acceptance

Source: Bayberry Consulting


Payment Network Alignment

1/1/2012 1/1/2013 1/1/2014 1/1/2015 1/1/2016 1/1/2017

10/1/2012

Waive Annual PCI

Compliance for Dual

EMV/NFC

Terminals

4/1/2013

Processor Compliance

For EMV Data

10/1/2017

Counterfeit Card

Liability Shift

for Petro Merchants

10/1/2015

1). 100% Data Compromise

Relief (MC only) &

2). Payments Hierarchy Begins

(D, MC & AMEX)

10/1/2015

Card Present, Counterfeit Card

Liability Shift

(except Petro)

10/1/2013

1). 50% Data Compromise

Relief (MC Only) &

2). Waive Annual

PCI Compliance

Key Milestones - PCI/Liability Shift Statements:


Agenda








Discover EMV: D-PAS

D-PAS: Discover Payment Application

Specification

• The D-PAS program has been developed in compliance with the current EMV standards

The D-PAS story • Discover acquires Diners in 2008

• D-PAS mandates have been issued globally in countries impacted by governmental, regional, or industry mandates, and/or

where there is significant EMV penetration.

Global Progress

• D-PAS leveraged by Discover, PULSE, Diners Club, and Global Net partners

• 90+ engagements underway


• D-PAS: Contact EMV Payment Application



D-PAS & Contactless D-PAS: DFS’ EMV Specification


Contactless D-PAS: contactless EMV & Mag Stripe

Magnetic Stripe Data + Dynamic CVV

EMV data + EMV security elements

Contactless D-PAS


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


Anatomy of a Contactless EMV transaction

Contact less D-I Chip

1. Tap contact less

D-PAS card to

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: Contactless

Landing Zone

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:

• Specific Payment System’s

kernel (V/MC/Amex/DFS)

• D-PAS AID

• D-PAS Public Key

• D-PAS Terminal Parameters

Options:

• Online PIN

• Online Authorization


Anatomy of a Contactless Mag Stripe transaction (Zip)

Authorization Clearing

Card Issuer

Acquirer

Zip Reader

Clearing Message

Authorization Message 0110

Authorization Message 0100

ISO 8583 - Mag Stipe Format


Discover Zip - Major Merchant Acceptance (as of December 2010)

More than 125,000 merchant locations nationally accept Zip. This number is growing daily

and includes everyday spend merchants like major retailers and public transit agencies.

Braum Ice Cream

Burger King*

Compass Group

Dairy Queen*

Einstein Bagels

Jack In The Box

McDonalds*

Sbarro

Tim Hortons

Whataburger

Restaurants &

Food Service Groceries &

Pharmacies Bartel Drugs

Duane Reade

Meijer

Rite Aid

Spartan Stores

Whole Foods*

Transportation

& Vending

Utah Transit Authority

Vending Machines*

Taxis in major cities, including

Boston, Chicago, Houston,

Atlanta, Washington DC*

Convenience &

Petroleum 7Eleven

BP

Chevron*

Circle K

Hess

Kum & Go

Mac's

Murphy Oil*

Sheetz

Other Retailers

Best Buy

Foot Locker

NY & Company

Office Depot

Sports Authority

Sprint*

The Home Depot

The Paradies

Airport Shops

Plus over 25,000 other

smaller merchants


Summary

• Discover & Diners Club International

• 3 Networks: Discover, Diner Club & Pulse

• Network-to-Network Partnerships

• EMV Migration

• D-PAS (contact EMV)

• Contactless D-PAS: Contactless EMV



Discover Financial Services

Thank You

[email protected]

MULTOS World Series USA February 7, 2013 Salt Lake City · MULTOS World Series – USA February 7, ... The Nilson Report, #989, March 2012 2. The map denotes countries or territories

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