Digital Disruption: Regulators, Customers, Consumers

Barriers to entry are being lowered in every industry

Public companies need to continue to succeed today while reinventing themselves for the future

New entrants looking left and right for opportunities

Everyone and everything is becoming connected

Growth of the sharing economy

Regulatory, security and privacy concerns

Pace of change and democratization of technology

Millennials and a new way of working

… significant change is happening today

The Digital Maze

Industries are being reinvented

Cybersecurity is a consequence of global hyper-connectivity

45 hosts – ARPANET 1973 8.4 billion things 2017

“the ability to protect or defend the use of cyberspace from cyber attacks.”

While devices and data are growing … disconnects create divergence

• 50 billion devices by 2023

• 90% of digital data created in the last 2 years

• 100 fold increase in data flows in the next 5-7 years

• Connected devices are not necessarily enabling

connected data.

• This can create divergence in our connected

world.

The world is also becoming less secure, more vulnerable to attacks

Explosion in complexity and connectivity…. …changing nature, scope & frequency of attacks

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Increasingly fragmented, complex digital ecosystem, explosion in ways to pay

3

1

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ConnectivityPhysical World and Digital World converging / becoming interconnected

Device proliferationProliferation of internet-enabled devices exposes everyone

Complexity

The cost of ‘insecurity’ to society and the economy is massive

Source: World Economic Forum, McKinsey, Gartner, Nilson Report, European Central Bank, Lexis Nexis, BCG Global Payments Model.

Payment Security – A Hot Topic

A Seismic Shift: From In Store to Digital

SOURCE: WORLD PAY STUDY AND MASTERCARD ADVISORS ANALYSIS

45%

55%

Q4 2017 Q4 2018 Q4 2019 Q4 2020 Q4 2021

CP CNPIn store Digital

What security means to different stakeholders

Account holder Bank Merchant

• Cybersecurity anxiety the new normal

• Users demanding data transparency

• Uncertain of the real financial risks

• consider security as one of the top criteria when evaluating financial services

• Attacks changing, increasing fear of

catastrophic attack

• Higher expectation on cyber risks. Boards / management prioritizing & investing in security

• Payments ecosystem security complex to

navigate

• Focused on abandonment, approval rates,

indirect & direct costs of fraud management

• SME merchants without tools or expertise, unable to keep pace

• Lack of urgency

• Significant financial & reputational risk

• Concerned about the integrity of financial system: increasing oversight, legislation, regulation, and criminalization of activities in several areas

• Increasingly demanding better cybersecurity practices, greater focus

• Some markets taking aggressive approach to regulation (e.g. strong authentication)Governments & Regulators

Source: Charles Kulig and Juan Sebastian Alvarez, "Ciberseguridad en America Latina", October, 2016

Avg.- 10 apps /per day are launched by Smartphone users4

Consumers expect Security +

Convenience

New Regulations

New Responsibilities

GROWTH 10X Higher than Card Present / POS3

5+ Devices 7

FRICTION:

75% carts abandoned @ checkout5

1/5 consumers – e-commerce =

2Trillion in retail e-spend 2

Shift to CNP fraud

↑30%YOY

Connected consumers

Mobile’s share of web traffic1

FRAUD:

40% use card less - post-fraud6

The rapidly changing payment landscape drives the need for

innovative solutions

New Standards

1. We are social, digital in 2017, global overview, 2017.

2. Emarketer. Worldwide retail ecommerce sales: the emarketer forecast. 2016.

3. Mastercard. Q1 - Q3 2016 data, across all card types. 2016.

4. App annie. Spotlight on consumer app usage. 2017.

5. Emarketer, “three-quarters of the world’s shopping carts are abandoned,” 2016.

6. Aite. Global consumer card fraud: where card fraud is coming from. 2016.

7. Digitas, connected commerce survey. 2015

Digital is the new NORM

Summary of the pain points

•Data: How to protect it & gain value of it

•Security: How to protect Customers & Consumers

•Standards: Interoperability. How to avoid isolated solutions.

•Consumer Experience: How to guarantee frictionless interaction

•Effective Sales: How to optimize e-commerce

The digital

society

requires a

leap of faith Its success depends on trust

The Value of Trust

Facebook, My Digital Life and the 2016 US Presidential Election

In March billions was wiped off the value of Facebook’s shares following reports that the data of millions of users were allegedly used to sway the US Presidential election. Facebook was accused of failing to properly inform users that their profile information may have been obtained and kept by Cambridge Analytica, a political consulting firm. Facebook admitted breaching its users’ trust, and in turn accused a Russian researcher of “an unacceptable violation of trust” after it was reported he had sold data harvested from a “My Digital Life” survey for commercial gain.

Mark Zuckerberg , Day 1 Senate hearing, opening comment

“Its clear now we didn’t do enough to prevent these tools being used for harm ….. We didn’t take a broad enough view of our responsibilities and that was a big mistake”

Regulation

“Super Apps”

AI & Machine Learning

PSD2, Open Banking, Identity Management,

Privacy, KYC, AML, Customer Consent

Consolidation of different features and

ubiquity of a social platform to rule them all

like a “Super App” i.e. WeChat

Proliferation of Connected Devices, Voice

Authentication, Delegation of Decision

Making to Machines

Trust is even more indispensable considering what lies ahead in the

future…

5

It all starts with setting the foundation right along with an innovative solution

set...

5

Inject Intelligence

Enhanced Data

Cross Vertical Identity Solutions

Industry ConvergenceCustomer Experience front & center

Fix ecosystem at industry level Innovate beyond payment space

Balance securityand experience

“Intelligent” friction only –peace of mind

Data sharing – “bridging the gap”

Harness DigitalData streams

“Connect the Dots” – no data siloes

Leverage any Interaction

Artificial Intelligence to inform decisions…

…while eliminating friction

Payment and technology industry standards

Build and improve on standards

…while maintaining interoperability

Connect Digital interactions to transactions

Leverage solutions to have consistent security and experience across channels

Data interaction between layers improves Intelligence and Decisioning

THENCOUNTERFEIT

LOST & STOLEN

NOWIDENTITY THEFTCYBER-FRAUD

ACCOUNT AUTHENTICATION

CONSUMER VERIFICATION

TRANSACTION MONITORING

THE EVOLUTION OF SECURITY

Magstripe CNP CVC2 EMV 3DS 2 EMV Chip Token

PIN Password Address SRC Biometrics

●●●●

Mainframe Reports & Rule Engines

PredictiveAI

DynamicRules

Integrated Lifecycle Mgmt

PIN on Glass

Spend per AccountWhitelist StatusBlacklist Status

Consumer Merchant Issuer

• Behavioral/passive biometric anomalies

NuDetect

Identity Check

Building Intelligence throughout the journey

Does this consumer interact with this device in a familiar way?

Has this consumer shopped at the merchant before?

Are the channel attributes valid?

Does the purchase fit the consumer’s historical transaction

behaviors?

How valuable is this consumer?

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• EMV 3DS2.0 RBA Score• Merchant assurance of

PAN/device• Inverse Recommender

• BIN Profiling• Cross Border Profile• Simple Compare• Implication Score• Event/Venue Detection

• Cardholder Segmentation

PR

OD

UC

T

RBA Insights

RBA

Authorization IQSafety Net

Decision Intelligence

Spend Alerts & Controls

MasterCom

Key Technologies

Risk-based authentication (RBA)

• Implements a risk assessment tool together with 3D Secure to silently identify and authenticate low-risk transactions

• Challenge only suspicious transactions

• Delivers minimum impact, and an ideal experience, to the cardholder

Biometric Authentication

Dynamic password

• One-time password (OTP) delivered by

— Automated notice / notification (SMS)

— Mobile apps

“Silent”

authentication

(Up to 95%)

Step-up challenge

Decline authentication

Mastercard Digital Security Roadmap

Friction

Improve Consumer Experience

Increase Conversion

Approval Rates

Fraud

Optimize eCommerce

Thanks

Q&A