Tpi Cash And At Ms The Future Chip Wickenden 10 Jul2011

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Reviews surprising trends in the cash and ATM space

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Tpi Cash And At Ms The Future Chip Wickenden 10 Jul2011

  1. 1. Cash and ATMs: The Future Chip Wickenden FIS Global© 2011 NACHA — The Electronic Payments Association®. All rights reserved. No part of this material may beused without the prior written permission of NACHA. This material is not intended to provide any warranties, legaladvice, or professional assistance of any kind.
  2. 2. Definitions • Cash Ready Money, Money in the form of bills or coins, Money holding a defined or stated value. • ATM Acronym for ―Automated Teller Machine‖, Synonym: ABM, or ―Automated Banking Machine‖. Unattended electronic machine at a bank or other location that allows customers to perform cash withdrawals and basic banking activities. 2 The Payments Institute – July 10-13, 2011 – Washington, D.C. © 2011 NACHA — The Electronic Payments Association®. All rights reserved.
  3. 3. A Brief History of ATMs1969 2011 Image Deposit and Currency National recognition networks form, deploys network PIN Debit consolidation, at the POS card brands Shared deposit functionality enter Surcharge model emerges emergesATMs in the bank Additionallobby, or at the Regional ATM dispensing andbank entrance, networks form: transactionalconnected to the mutual benefit services addedbank DDA modelsystem Reduce Expand Improve Enhance Non- Card Increase teller coverage, coverage the revenue customer Associations utilization of transaction improve and utility model fee income define value non – cash cost customer for smaller plays dispensing usage FI’s functions The Payments Institute – July 10-13, 2011 – Washington, D.C. 3 © 2011 NACHA — The Electronic Payments Association®. All rights reserved.
  4. 4. ATM Use in the United States Total U.S. ATMs Total U.S. ATM Types of U.S.1999 227,000 Transactions ATM Billions of Trnsactions Transactions2000 273,000 1999 10.82001 324,000 2000 12.82002 352,000 2001 13.6 182003 371,000 2002 10.5 % 2003 9%2004 383,000 10.8 2004 11.0 18 552005 396,000 % 2005 10.5 %2006 395,000 2006 10.12007 415,321 2007 14.9 2008 11.8 Withdrawls2008 425,010 2009 Deposits2009 2010 Balance Inquiries2010 -4.0 1.0 6.0 11.0 16.0 Other The Payments Institute – July 10-13, 2011 – Washington, D.C. 4 © 2011 NACHA — The Electronic Payments Association®. All rights reserved. Sources: Creditcards.com, Wired Magazine
  5. 5. How ATMs Work Consumer Printer Card Reader Journal Printer Internal Switches Network Interface / HSM Processor Currency Cassette The Payments Institute – July 10-13, 2011 – Washington, D.C. 5 © 2011 NACHA — The Electronic Payments Association®. All rights reserved.
  6. 6. How ATMs Work ATM Processing Device Controller Bank Marketing • Handles Customer System Interaction • Validates Cards • Manages screens Bank Fraud Monitoring Transaction Switch • Routes Transaction Bank Core Requests and Responses • Fraudulent Transaction Processing Monitoring ATM Network Operational Monitor Gateways • Monitors System Health Others • Detects Anomalies ATM Operations The Payments Institute – July 10-13, 2011 – Washington, D.C. 6 © 2011 NACHA — The Electronic Payments Association®. All rights reserved.
  7. 7. What’s on an ATM Card Check Card – no POS Hologram Embossed Card Info Card Type Debit Card – POS Network Logo Magnetic Stripe 000 CVV / CVC Signature Block Legal Notice Network Bugs The Payments Institute – July 10-13, 2011 – Washington, D.C. 7 © 2011 NACHA — The Electronic Payments Association®. All rights reserved.
  8. 8. What’s on an ATM Card?Magnetic Stripe Data Track 1 (IATA) *** Track 1 Layout: *** | SS | FC | PAN | Name | FS | Additional Data | ES | LRC | – SS=Start Sentinel "%― – FC=Format Code – PAN=Primary Acct. # (19 digits max) – FS=Field Separator "^" – Name=26 alphanumeric characters max. – Additional Data=Expiration Date, offset, encrypted PIN, etc. – ES=End Sentinel "?" – LRC=Longitudinal Redundancy Check Track 2 (ABA) *** Track 2 Layout: *** | SS | PAN | FS | Additional Data | ES | LRC | – SS=Start Sentinel ";" – PAN=Primary Acct. # (19 digits max) – FS=Field Separator "=" Additional Data=Expiration Date, offset, encrypted PIN, etc. – ES=End Sentinel "?" – LRC=Longitudinal Redundancy Check Track 3 (Supplemental) *** Track 3 Layout: ** Similar to tracks 1 and 2. Almost never used. Many different data standards used. 8 The Payments Institute – July 10-13, 2011 – Washington, D.C. © 2011 NACHA — The Electronic Payments Association®. All rights reserved.
  9. 9. A Word About EMV. . . Or “Chip and PIN” as the Brits call it . . , Europay / MasterCard / Visa • Smartcard technology replaces magnetic stripe • PIN validation transfers fraud liability to issuer • Encryption algorithms provide much higher security levels • Form factor not limited to a card 9 The Payments Institute – July 10-13, 2011 – Washington, D.C. © 2011 NACHA — The Electronic Payments Association®. All rights reserved. Source: MasterCard Worldwide
  10. 10. Cost Components of a Typical ATM System Cash & Consumables 1.6% Problem Recovery 4.0% 2.4% 4.0% Hardware 36.0% 5.0% Channel Management 12.0% Telecommunications Ops 35.0% Switch & Host Ops Application Management Installation/MACs 10 The Payments Institute – July 10-13, 2011 – Washington, D.C. © 2011 NACHA — The Electronic Payments Association®. All rights reserved. Source: Various
  11. 11. The Quest for Revenue - Surcharging• In order to promote their use, banks did not charge customers for the use of ATMs• Once cooperative networks had been established banks began charging foreign ATM fees – Offset network expense – Source of revenue• Surcharging was restrained by mutual consent in order to continue promote network growth – Charging everyone else’s customers had a great deal of appeal 11 The Payments Institute – July 10-13, 2011 – Washington, D.C. © 2011 NACHA — The Electronic Payments Association®. All rights reserved.
  12. 12. Image and Mixed Deposit and ATMs• Customer inserts check, currency or both• Terminal reads and validates• Displays Image of checks and amounts• Customer option to accept or decline• If declined all items are returned 12 The Payments Institute – July 10-13, 2011 – Washington, D.C. © 2011 NACHA — The Electronic Payments Association®. All rights reserved.
  13. 13. Leveraging the Network – POS, Kiosks, and More • PIN Debit pioneered Point of Sale debits as a natural extension of the network • Debit POS drove a reduction in ticket size from the credit card base, but still increased total average ticket • Banks are continuing to work with in branch and stand alone kiosks • Branch back counter devices such as currency counters/recylcers also leverage the network 13 The Payments Institute – July 10-13, 2011 – Washington, D.C. © 2011 NACHA — The Electronic Payments Association®. All rights reserved.
  14. 14. ATM Fraud• Objective: Gather and correlate magnetic stripe and PIN data in order to clone the card and drain the account• Challenge: PIN data is stored separately• Technique: Camouflaged skimmers and cameras• Countermeasures: Transaction monitoring software; self aware terminals 14 The Payments Institute – July 10-13, 2011 – Washington, D.C. © 2011 NACHA — The Electronic Payments Association®. All rights reserved.
  15. 15. Brazil • the number of ATM • Check Balances transactions per inhabitant • Get Cash • Make a Deposit increased by 44.9% • Transfer Funds between 2001 and 2007, • Account to Account Transfers with a 12.6% increase in • Reload Prepaid Card • Pay Bills the number of cash • Pay Taxes transactions per terminal • Donate to Charity in the same period. • Buy Tickets • Top Up Prepaid Phone • What else are they doing? 15 The Payments Institute – July 10-13, 2011 – Washington, D.C. © 2011 NACHA — The Electronic Payments Association®. All rights reserved.
  16. 16. Garanti Bank in Turkey has a Different RemittanceSolution Money Transfer without Bank Account • As with all other cardless Paramatik transactions, press the “ENTER” button and select the “Withdraw/Send Money Transfer without Bank Account” step from the ―Cardless Transactions” menu, • Enter your T.C. Identity number and mobile phone number, followed by T.C. Identity number and the mobile phone number of the person to whom you want to send money and deposit the amount you want to send into Paramatik. When you deposit money, a PIN will be sent to the recipients mobile phone via SMS. • The recipient will press the “ENTER” button on Paramatik and select the “Withdraw/Send Money Transfer without Bank Account” step from the “Cardless Transactions” menu. • After entering his/her T.C. Identity number, date of birth, mobile phone number, followed by the PIN sent to his/her mobile phone, the recipient will withdraw the money sent. 16 The Payments Institute – July 10-13, 2011 – Washington, D.C. © 2011 NACHA — The Electronic Payments Association®. All rights reserved.
  17. 17. These ATMs Have Taken Money Full Circle• Commodity Barter• Coins• Currency• Notional Accounts• Electronic Accounting• Digital Currency• Non-Cash Currency• Dispensing Commodities 17 The Payments Institute – July 10-13, 2011 – Washington, D.C. © 2011 NACHA — The Electronic Payments Association®. All rights reserved. Source: Finextra.com
  18. 18. ATM SecurityYou just can’t make this stuff up . . . The Payments Institute – July 10-13, 2011 – Washington, D.C. 18 © 2011 NACHA — The Electronic Payments Association®. All rights reserved.
  19. 19. ATM Security 19 The Payments Institute – July 10-13, 2011 – Washington, D.C. © 2011 NACHA — The Electronic Payments Association®. All rights reserved.
  20. 20. The Lifecycle of Cash Central Bank ATM / Banks Branch Inventory & Print & Dispense / Deposit / Transport Destroy Mint Accept Withdraw Bank Cash Individuals Vaults Deposit / Inventory / Hoard Pay / Withdraw Validate Receive Businesses Accept • A developed economy may spend 0.75% of GDP maintaining cash supplies • An emerging economy may spend up to 2% of GDP • Translates to 1 -5% of the face value of currency annually The Payments Institute – July 10-13, 2011 – Washington, D.C. 20 © 2011 NACHA — The Electronic Payments Association®. All rights reserved. Source: Payment System Advisors
  21. 21. Currency in Circulation• Brazil: 2004 – 52,019 million real; 2008 - 77% 92,379 million• Russia: 2001 - 487,225 million Russian 876% rubles 2010 - 4,756,155 million• India: 38,336,000,000 banknotes in 2004 47% to 56,549,000,000 by 2010• China: 22,039.08 million Yuan in 2005 to 408,139.93 million Yuan by 2010 1,751%• United States: 2000 – $568,614 billion; 2011 – $1,005,288 * (67% offshore) 77% Percentage of the world’s transactions in cash - 85% * Including 90,000 ten thousand dollar bills 21 The Payments Institute – July 10-13, 2011 – Washington, D.C. © 2011 NACHA — The Electronic Payments Association®. All rights reserved. Sources: Various central banks, Wired Magazine
  22. 22. Are We Really Winning the War on Cash ? U.S. Payments Volume by Type Billions of Transactions 50 1100 Cash in Circulation 40 (RH Axis) Annual Transaction Volume 30 Checks ACH Debit Card 20 Credit Card Prepaid/EBT 10 0 0 2000 2003 2006 2009 The Payments Institute – July 10-13, 2011 – Washington, D.C. 22 © 2011 NACHA — The Electronic Payments Association®. All rights reserved.
  23. 23. Cash on the Balance Sheet The Payments Institute – July 10-13, 2011 – Washington, D.C. 23 © 2011 NACHA — The Electronic Payments Association®. All rights reserved.
  24. 24. Cash Vault Operations Typical Cash Vault Services • Deposit processing and verification • Teller and cash drawer audits • Currency inventory management • Counterfeit Detection • ATM cash replenishment • Check imaging and processing • Branch order preparation and fulfillment • Federal Reserve Services • Coin processing and wrapping • Commercial order prep • Retail deposit processing The Payments Institute – July 10-13, 2011 – Washington, D.C. 24 © 2011 NACHA — The Electronic Payments Association®. All rights reserved.
  25. 25. Cost of Cash to the Retailer 25 The Payments Institute – July 10-13, 2011 – Washington, D.C. © 2011 NACHA — The Electronic Payments Association®. All rights reserved. Source: Nielsen Report 2009
  26. 26. Wouldn’t You ? The Payments Institute – July 10-13, 2011 – Washington, D.C. 26 © 2011 NACHA — The Electronic Payments Association®. All rights reserved. Source: The Daily Express
  27. 27. Oh, the Irony ! The Payments Institute – July 10-13, 2011 – Washington, D.C. 27 © 2011 NACHA — The Electronic Payments Association®. All rights reserved. Sources: Change.org, Wired Magazine
  28. 28. Final Thought – What About the Branch ? 2002 2010 2016 E 5% 5% 5% Deposit via Mail Deposit at 8% 25% 26% 0% ATM Depsit via 56% 87% 69% 13% RDC 1% Deposit at Branch 11,400,000 5,221,374 7,977,099 4,344,512 3,468,304 2,610,687 2002 2010 2016 E Retail Checks Deposit Transactions As we continue to “win the war” on cash and checks, we need to think very carefully about what will happen in the branch. The Payments Institute – July 10-13, 2011 – Washington, D.C. 28 © 2011 NACHA — The Electronic Payments Association®. All rights reserved. Source: Celent Research 2010
  29. 29. Thank You and Disclaimer Chip Wickenden Solutions Executive FIS Global Chip.wickenden@fisglobal.com 1-904-422-1321 Unnamed lawyers made us include the following: The views expressed herein are the speaker’s personal views and do not necessarily reflect the views of NACHA - The Electronic Payments Association 29 The Payments Institute – July 10-13, 2011 – Washington, D.C. © 2011 NACHA — The Electronic Payments Association®. All rights reserved.
  30. 30. The Payments Institute – July 10-13, 2011 – Washington, D.C. 30© 2011 NACHA — The Electronic Payments Association®. All rights reserved.
  31. 31. Do Products Like These Address a Significant Contactless/ Mobile Threat? • Slightly. For the simplest contactless transactions, like commuter tap & go functions, the card can be decremented, so a shield offers protection • POS transactions generally have multiple interactions now, which effectively prohibit the ―pocket surfing‖ scenario 31 The Payments Institute – July 10-13, 2011 – Washington, D.C. © 2011 NACHA — The Electronic Payments Association®. All rights reserved.
  32. 32. Worldwide ATM Growth 2B to 3B in 5 Years The Payments Institute – July 10-13, 2011 – Washington, D.C. 32 © 2011 NACHA — The Electronic Payments Association®. All rights reserved.
  33. 33. Future ATM Distribution The Payments Institute – July 10-13, 2011 – Washington, D.C. 33 © 2011 NACHA — The Electronic Payments Association®. All rights reserved.
  34. 34. The Payments Institute – July 10-13, 2011 – Washington, D.C. 34© 2011 NACHA — The Electronic Payments Association®. All rights reserved.
  35. 35. Ummm – Can Somebody Call Security . . . The Payments Institute – July 10-13, 2011 – Washington, D.C. 35 © 2011 NACHA — The Electronic Payments Association®. All rights reserved.
  36. 36. Actually – That’s a Poster ... Not the Latest Technology The Payments Institute – July 10-13, 2011 – Washington, D.C. 36 © 2011 NACHA — The Electronic Payments Association®. All rights reserved.

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