Annual Report 2015

ANNUAL REPORT 2015

Contents

What we do ............................................................................................................................................................................................................................................04 Highlights of 2014 ............................................................................................................................................................................................................................05 A message from the Chair .....................................................................................................................................................................................................06 A message from the Managing Director .................................................................................................................................................................07 Promoting choice and competition ..............................................................................................................................................................................08 Ensuring consumer protection .........................................................................................................................................................................................10 Facilitating payments innovation ..................................................................................................................................................................................12 Case Study: Contactless on Transit ..............................................................................................................................................................................14 Providing leadership in fraud prevention .............................................................................................................................................................15 Communications and Charitable Giving ................................................................................................................................................................18

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THE UK CARDS ASSOCIATION

What we do

The UK Cards Association provides a dedicated representative voice for the card payments industry. Through engaging on behalf of our members with partners and stakeholders, we strive to ensure the UK card payments industry works as effectively as possible in the interests of consumers and retailers.

Our priorities for our

Facilitating payments innovation

members are:

As card and card-like payments develop and evolve, we act as a facilitator for industry innovation, bringing together new and existing providers in a non-competitive environment. At the same time, our experts deliver certainty on payments standards and integrity to ensure that consumers can use products everywhere, at any time, and that security is never compromised. We work with UK and European bodies in developing technical standards and manage accreditation of terminals and other products.

Promoting good outcomes for consumers through choice and transparency We aim to support UK consumers’ interests and to improve the payment experience for individuals and businesses using cards. We encourage consumer choice and competition by championing transparency in the card payments market, helping consumers to make the right choices. We also work with regulators to inform them how the market operates, so that regulation is relevant and proportionate. Ensuring consumer protection, with extra support for vulnerable customers We ensure responsible lending is at the heart of the industry. We work closely with partners in the debt advice sector to improve outcomes for consumers, including through evaluating evidence from the market and commissioning research. In particular, we facilitate the development of industry best practice aimed at helping consumers who experience problems with repayments.

Providing leadership in fraud management We deliver payment industry leadership of fraud management through Financial Fraud Action UK (FFA UK). We support major external operations, including the Dedicated Cheque and Plastic Crime Unit (DCPCU), which is the specialist police unit with a record of £470m of fraud savings. We provide the mechanisms through which members can share fraud intelligence, and deliver education and awareness campaigns to warn consumers of specific threats.

Board members of the Association (as of January 2015) American Express Services Europe Ltd Bank of Ireland Barclays Bank Plc Capital One (Europe) Plc Clydesdale Bank Plc Co-operative Bank Plc Elavon Financial Services Ltd Global Payments UK LLP HSBC Bank Plc Lloyds Bank Plc MBNA Ltd Nationwide Building Society NewDay Ltd The Royal Bank of Scotland Group Plc TSB Bank Plc Santander UK Plc Tesco Personal Finance Plc Vanquis Bank Ltd WorldPay (UK) Ltd

Other members AIB Group (UK) Plc C Hoare & Co Citibank UK Coventry Building Society First Data Europe Ltd Investec Bank Plc Metro Bank Plc Northern Bank Ltd* Sainsbury’s Bank plc Standard Chartered (Jersey) Ltd Virgin Money Plc Yorkshire Building Society *Danske Bank is a trading name of Northern Bank Ltd

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ANNUAL REPORT 2015

Highlights of 2014

JAN

• Melanie Johnson, Chair of UK Cards, presents evidence to key MEPs on the prospective impact of interchange fee caps on investment and innovation.

FEB

• UK Cards publishes figures showing that credit card debt fell by £8.9bn over the last five years, while spending on credit cards rose by 20% (£26bn), suggesting that consumers are using their cards more prudently.

MAY

• UK Cards figures show that the number of credit and debit card transactions grew at the fastest rate in almost a decade this month.

• On the eve of the transfer of the consumer credit regime to the Financial Conduct Authority (FCA), Melanie Johnson addresses a Frontier Economics conference on the need for the regulator to consider the range of products fitting different consumer needs.

• The UK Card Payments report is published, accompanied by the announcement that annual card spending had passed £500bn for the first time.

• The Department for Business, Innovation and Skills (BIS) announces that the government is satisfied with transparency for credit card customers, in the context of the midata programme, and will not be pursuing intervention.

AUG APR

• UK Cards delivers its first member conference, with speakers from the FCA, the incoming Payment Systems Regulator (PSR), and Transport for London (TFL).

• Contactless payments launched on the London tube, train and Docklands Light Railway network, with cardholders going on to complete 31.5m contactless journeys (including on buses) by the end of the year.

JUN

JUL MAR

SEPT

• The DCPCU-led international alliance behind Operation Sandhaven secures the conviction of an organised criminal gang responsible for major ATM fraud, with members receiving a total of 15 years in prison.

OCT

• Over the previous year running up to this month, the DCPCU press office generated £980,000 AVE* of coverage to raise awareness of the successful prosecution of members of organised criminal gangs responsible for fraud attacks on UK consumers.

NOV

• The new Payment Systems Regulator (PSR) publishes its landmark consultation focusing on the approach it will take to regulatory oversight of the market.

DEC

• The ‘Joint declaration of the UK Banks, Building Societies and Card Issuers’ warning of rising levels of telephone scams, is launched, with the PR and advertising campaign receiving support from a number of public bodies and consumer lobby partners.

*Advertising Value Equivalent

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THE UK CARDS ASSOCIATION

Message from the Chair, Melanie Johnson

At the time of my appointment five years ago, our industry was participating in a major government review into consumer protection for cardholders. As 2015 begins, there is another focused regulatory inquiry into credit cards in the form of the market study conducted by the Financial Conduct Authority (FCA). A legacy of the financial crisis is deep-seated concern over personal debt. While financial inclusion, in particular access to credit, is one of the building blocks of a healthy economy, businesses from across the lending spectrum should embrace – and welcome – the need to demonstrate responsible lending practices. The well-reasoned interventions in the payday lending market may reduce the supply of credit, but not the demand. Our industry has a major role in promoting access to credit which is underpinned by high standards of consumer protection.

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Alongside this focus on the credit card market, the card payment process itself is part of the landscape to be overseen by the incoming Payment Systems Regulator (PSR). We have been engaging with their team to discuss the role that a more holistic UK payments strategy can achieve in facilitating world class payments. At the same time as these changes, we are seeing increasing intervention at European level, demonstrated by the revision of the Payment Services Directive (PSD2) and the capping of Multilateral Interchange Fees (MIFs), with the latter having the potential to distort the market, increase direct costs and drive transactions from the UK. These illustrations demonstrate the need to engage with EU and international bodies to ensure their approach is consistent with UK practices and that interventions do not inhibit the ability of the UK market to compete globally. The card payments industry has a considerable record on which to draw. UK Cards and our members have worked hard over recent years to build a reputation for promoting good outcomes for consumers, and the industry is now characterised by open and positive interactions with our partners. An illustration of this is our long-standing Debt Advice Forum, which has given third sector colleagues a vehicle to shape and challenge business practices in the interests of vulnerable consumers. Results have included valuable improvements such as early intervention and ‘breathing space’, and the credit card sector is considered to be one where good practice has firm roots. To maximise the impact for consumers, we hope our forbearance framework can be matched by comparable support across other sectors, such as HMRC, local authorities and utilities.

Our industry engages openly and constructively with government and regulators. From an early stage, we have been providing advice and evidence to officials both at the FCA and the PSR. At European level, we helped launch the European Card Payments Association to educate and inform policy-makers while ensuring a strong card payments industry voice across member states. We recognise the importance of payment cards in the lives of consumers and we have been proactive in improving consumer protections. Since 2010 we have delivered favourable changes to payment allocation, re-pricing and unsolicited credit limit increases, as well as having introduced annual credit card statements, all of which have given more control to cardholders. We look forward to sharing evidence of the positive impact of these changes with the FCA. This approach – comprised of openness to scrutiny, willingness to work with partners, and pro-activity in identifying areas for improvement – has served us well. Ours is a growing industry, with high levels of customer satisfaction. We have worked hard over the last five years to ensure the industry has done the best by consumers. We look forward to engaging with all partners over the coming year and to playing our part in the important debates to come.

ANNUAL REPORT 2015

A message from the Managing Director Graham Peacop

The card payments industry has a long-standing role in making transactions easier and more secure for consumers. Payment cards have been the enabler of online shopping, opening new markets for retailers and increasing choice for customers. On ‘Cyber Monday’ in December, over 25m of us shopped online, with spending up 26% on the 2013 figures*. Payment cards played a major role in facilitating that rapid growth, with shoppers benefiting from more choice and extra protection over cash.

Card payment technology, specifically contactless, is playing a role in supporting other aspects of consumers’ lives, including transport. We are hugely proud of our work with TfL, which has led to the roll out of contactless ticketing across London. Through applying our experience of bringing together partners from diverse industries, we assisted in creating a model of collaboration which made a reality of contactless journeys on the city’s bus, train and tube networks. To build on this success story, we are in discussion with other transit providers about how we can facilitate contactless payments elsewhere. We encourage government and the incoming Payment Systems Regulator to help facilitate similar models of collaboration in other areas where innovation can improve the lives of consumers. The role of card payments in each of these environments has been to connect businesses and individuals, and drive growth. But we also want to do what we can to ensure that the card payments system is not misused. Illustrations include our work to protect children from accessing online adult images, and also the evidence we are contributing to government on the importance of removing legal barriers to data-sharing around fraud and money laundering.

We continue to be the main sponsor of Financial Fraud Action UK (FFA UK), which leads industry collaboration on fraud prevention. A recent example of FFA UK’s role as a vehicle for collective action was the Joint Declaration on telephone scams. This project showed what can be achieved through coordinating simple industry-wide messages to consumers, projected through an impactful media and advertising campaign. To build on the results, we seek to encourage a range of partners, including the government, to join forces with us in creating a transformative UK-wide anti-fraud campaign. Our police partnership, the Dedicated Cheque and Plastic Crime Unit (DCPCU), continues to deliver outstanding results – reflected in the £20 million increase in fraud savings over the last year, bringing the total since the Unit was formed to £470 million, and a 24 per cent rise in the number of arrests. We are proud of the work of our officer colleagues and of our long-standing police relationships across the country. As I look ahead to 2015 I am confident that the industry has a great story of innovation and consumer protection to tell. My team and I have been proud to play a role in articulating that record to government, media and other partners, and we look forward to the developments to come.

*http://www.imrg.org

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THE UK CARDS ASSOCIATION

Promoting choice and competition

The card payments industry aims to encourage consumer choice and competition by championing transparency of providers, systems and costs, particularly as an increasingly complex network of businesses sit behind each transaction. We also assist government and regulators by providing information and evidence from across the market.

Helping consumers compare products and switch provider Competitive markets depend on consumers being able to understand the products on offer and their different benefits and costs. We work with members to develop tools which allow consumers to more easily compare costs and make the right choices about products to suit their needs, such as our sponsored website www.cardcosts.org.uk. During 2011 the UK government launched the strategy Better Choices Better Deals: Consumers Powering Growth to help consumers navigate a rapidly changing and complex economy. This included the key project ‘midata’, which aims to provide consumers with access to their consumption data in utility-style markets – energy, personal current accounts, credit cards and mobile phones – to allow them to compare and switch providers. The government had the power to compel firms to act if their industry was found not to meet transparency standards. During 2013 and 2014 UK Cards showcased several examples of transparency in the credit card market, including annual statements, summary boxes and payment notification to officials in the Department for Business, Innovation and Skills. Consequently, the department’s review found further intervention in the credit card market to be unnecessary. The review noted provision by most companies of online accounts allowing customers to download data, and the many ways in which they provide information to empower customers in choosing credit cards, noting that, at around 20%, the sector saw a healthy level of switching.

SPENDING ON PLASTIC CARDS ACCOUNTED FOR

31% OF GDP

IN THE 4 QUARTERS TO Q2 2014

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As social media increasingly becomes a platform for interaction on financial products, banks and card companies are using these channels for customer communications and promotions. UK Cards is providing evidence and insights to the FCA on how financial promotions can work effectively within the limited space available on social media. FCA credit card competition review The extent to which consumers drive competition through ‘shopping around’ is an emerging key theme of the credit card market study, which the FCA announced in April 2014. Throughout the year UK Cards has held a number of detailed briefings with senior officials from the FCA. This has given us the opportunity to engage with the methodology for the project, and to discuss how the industry can contribute its own insights, including detailed information on the impact of industry measures designed to enhance transparency and responsible lending.  In November, the FCA published its terms of reference for the study, identifying the key themes for the review, including how firms recover costs across different cardholder groups, and the extent of unaffordable credit card debt. We are continuing to lead discussions between card companies and the FCA as the regulator prepares its research and analysis for the first half of 2015.

ANNUAL REPORT 2015

Building a relationship with the new Payment Systems Regulator (PSR)

Interchange – investment in payments in the new environment

Competition, innovation and the interests of service-users are the three core objectives of the incoming Payment Systems Regulator (PSR), an economic regulator established by HM Treasury to combat a perceived lack of competition in the payments landscape.

A major priority for UK Cards has been participation in the EU debate on the capping of interchange fees. These fees are not paid by consumers but are exchanged between retailers and card companies to share the cost of running the card payment infrastructure. Following concerns around competition, the European Commission proposed caps for interchange fees during 2013, which were then voted through the European Parliament in 2014 and are expected to take effect in mid-2015.

As the PSR’s scope and remit took shape during 2014, UK Cards worked to inform and engage its team through responding to the initial call for inputs, providing detailed briefings to officials and participating in a number of workshops. We highlighted the contrast between the payment industry and the more traditional utility markets of rail, gas and water – with our industry being characterised by a variety of networks and disrupters overlaying each other, rather than one core infrastructure - and the different approach this calls for in terms of regulation. We also emphasised the need for the PSR to help UK firms manage the overlapping regulatory EU and UK regimes. The PSR consultation, published in November 2014, clarified a focus on the interbank systems (e.g. BACS, CHAPS and Faster Payments), but the two main card scheme operators (i.e. MasterCard and Visa), and the issuers and acquirers that participate in them, will also be regulated. The PSR proposes a new Payments Strategy Forum with representation from across the industry and service‑users. Other card-related proposals include card schemes needing to demonstrate representation of service-users at board level, as well as publishing board minutes, and making access requirements publicly available. Although the arrival of the PSR raises questions about the growing number of regulators in financial services, we will do all we can to help it become successful in encouraging a more holistic UK payments strategy, particularly through driving collaboration with other industries such as telecoms and transport.

UK Cards has consistently challenged the Commission’s proposals on the basis that they will upset the balance of cost- sharing between retailers and cardholders. In particular, we highlighted the likely potential impact on the ability of card issuers to invest in fraud prevention, innovation and competitive offers for cardholders. While we did not dissuade the Commission from capping the fees, we influenced the EU Council to include more flexibility to vary rates within Member States. This is important for consumers as variation can be used to encourage adoption by retailers of more secure payment methods, as demonstrated by the experience of Chip & PIN uptake in the UK. We also successfully lobbied for commercial cards to be left out of scope, the inclusion of which would have disadvantaged SMEs through additional credit risk and reduced cash flow. Unusually for a domestic economic regulator, the PSR will not have power to influence these network costs. We welcome their statement of intent to engage with the relevant authorities in Europe and consider the impact of the caps on the UK market. We will continue to work closely with officials on this important area of regulation. Creation of the European Card Payments Association As the card payments industry is global and interacts with regulation from around the world, we work closely with international industry bodies, particularly in Europe. This year, we have had a leading role in the formation of the new European Card Payments Association (ECPA), which will provide a stronger and clearer voice on card payments across 28 countries.

INCREASE OF

TOTAL SPEND IN THE 12 MONTHS TO OCTOBER 2014 VIA THE INTERNET WAS

£36 BILLION THIS WAS AN INCREASE OF 7.5% COMPARED WITH OCTOBER 2013

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THE UK CARDS ASSOCIATION

Ensuring consumer protection, with extra support for vulnerable customers The card payments industry is committed to responsible lending, to help consumers manage the borrowing on their credit cards, and to support those who are at risk of financial difficulties.

FCA taking over consumer credit regulation

Partnerships across the third sector – informing business practices

UK Cards has been working for many years to improve levels of consumer protection in credit card lending. We welcomed the transfer, during 2014, of consumer credit regulation from the Office of Fair Trading (OfT) to the FCA, enabling one regulator to have oversight of different aspects of conduct within financial firms.

Our long-standing Debt Advice Forum is part of our commitment to giving third sector partners meaningful ways to engage and influence the card payments industry. It is a chance for two-way dialogue on matters of importance for the debt charities, and the Forum’s discussions have influenced business practices. During 2014 the Forum reviewed the impact of consumer protection measures to identify which are working well, and where there might be scope to do more to support vulnerable consumers.

UK Cards has ensured our industry has been closely involved in the transfer process, and that we have had a voice in shaping a regulatory regime which supports and enhances the interests of consumers. A major priority has been discussions on the Consumer Credit Sourcebook, or ‘CONC’, and we have had a detailed dialogue with officials on the drafting of these consumer credit rules. Looking forward, we are committed to supporting officials in the FCA as they discharge their new regulatory powers.

A good example of the latter was our discussion around the Money Advice Trust’s Changing Household Budgets report, which found that many debt problems are now driven by people’s inability to afford basic household bills such as energy, water, telephone and council tax. Specifically, we were able to highlight the importance of comparing standards in debt collection practices used by local authorities and utility companies with measures in place across the consumer credit industry, for example those relating to ‘forbearance’ and ‘breathing space’. The contribution made by our debt advice sector partners was highlighted during our Annual Reception at Cannon Bridge Roof Gardens. Baroness Jean Coussins, Chair of the Money Advice Trust, delivered an impactful speech which articulated the next steps in ensuring support for individuals and families who are under financial pressure.

CARD CARDREPAYMENTS REPAYMENTS CREDIT CARD DEBT

FEBRUARY 2006

24%

£69.1bn

UP

NOVEMBER 2014

£61bn NEW SPENDING FEB ‘06 – NOV ’14

OUTSTANDING CREDIT CARD DEBT HAS FALLEN FROM A PEAK OF £69.1 BILLION IN FEBRUARY 2006 DOWN TO £61 BILLION IN NOVEMBER 2014. THIS IS DESPITE AN INCREASE OF £29 BILLION (24%) IN NEW SPENDING OVER THE SAME PERIOD. 10

43%

43% OF OUTSTANDING BALANCES ARE PAID OFF IN FULL EACH MONTH OR AT 0% INTEREST.

ANNUAL REPORT 2015

Reducing telephone costs for consumers in financial difficulties

Protecting consumers from illegal online content

As part of our commitment to responsible lending, UK Cards is one of the Sponsors of the Lending Code. We work closely with officials at the Lending Standards Board (LSB) to help deliver its independent compliance and monitoring role of the Code. An example of an important change in 2014 has been the industry’s review of the cost of telephone calls, particularly in respect of customers who contact their bank to discuss financial difficulties. The results of this project, developed in collaboration with the LSB, will see changes being introduced over the next year to telephone numbers offered by firms.

Over the last year, UK Cards has worked to prevent the use of cards for illegal or harmful activity. An example of this has been our support for a step change in action to prevent children’s access to online adult images – a problem which naturally inspires considerable public concern. While detection processes are well established within the card schemes to identify and prohibit payments from being received by websites with illegal content, we recognise the desire to do more to protect children from adult images which are not behind a payment wall. To this end, we have worked with the Authority for Television on Demand (ATVOD) to call for legislation which will allow the card payments industry to restrict payments for overseas websites which offer free hardcore material to under-18s in the UK. We have also been working with the Gambling Commission, under their new licensing powers, to ensure that acquirers restrict payments to overseas websites which do not meet the Commission’s requirements.

Ensuring effective claims handling One of the benefits of payment cards over cash is that consumers have the right to claim back their money if goods are not delivered or do not match expectations. Claims Management Companies (CMCs) have a legitimate role to play in this process, and their involvement in pursuing claims is regulated by the Ministry of Justice (MoJ). However, in the case of Section 75 claims against credit card issuers, CMCs are not covered by regulations, and we have seen evidence of consumers being exploited by unscrupulous companies. To remedy this, UK Cards has been lobbying for such claims to be brought within the jurisdiction of the MoJ, a reform which would require a change in the law. In drawing attention to consumer exploitation, we are in the process of seeking support from other key partners, such as Which? and Citizens Advice, and are hopeful that the government will act on our shared concerns.

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THE UK CARDS ASSOCIATION

Facilitating payments innovation

As the payments eco-system evolves, UK Cards facilitates collaboration between existing and emerging players in the interests of consumers. Building on a long-standing record of innovation, we want to reinforce the role of the UK as a global leader in new uses for card and card-like payments. To do this, we help new initiatives to the market while ensuring that systems retain interoperability and that consumer security is never compromised.

IN 2014…

Steep climbs in acceptance of contactless

Near Field Communication – here at last?

Contactless payment cards have been in circulation in the UK since 2007, but until recently the uptake from card companies, retailers and consumers was patchy and typically London-centric. Transforming this picture, the years 2013-14 have seen a major step change, with more than 54m contactless cards now in circulation from 13 banks and credit card issuers. A greater number of transactions took place over the first nine months of 2014 than over the previous six years combined. Significant events driving this momentum included a number of major retailers beginning to accept contactless in stores, as well as deployment on the London transport system.

As greater numbers of retailers begin to accept contactless payments, the scene is set for acceptance of card payments from mobiles or other Near Field Communication (NFC) devices in the future. The launch of Apple’s latest NFCenabled iPhone 6 will likely be looked back on as a game-changer in terms of the role for NFC as an accepted form of payment. UK Cards continues to encourage cross-industry collaboration through the work of our NFC Open Forum, which offers competing industry sectors an opportunity to come together to discuss market developments and how an integrated offer to consumers might be delivered.  

Growth in usage is welcome, but there is a responsibility on the card payments industry to ensure customers have a consistent experience, whether between different retailers in their local area, or when travelling around the country across different transport systems. To this end, we are developing core guidance for retailers and transit operators on how best to implement contactless acceptance, drawing on experience of best practice from both sectors. As the guides are refined, we are engaging in retailer and transit forums to gather input, and to ensure that all relevant parties are consulted and brought within the scope of the project. Alongside this, we are delivering a proactive media relations programme to improve consumer confidence in the security of contactless payments, particularly by raising awareness of the negligible rate of fraud committed on the cards.

17,226,841

14,240,780

CONTACTLESS BUS JOURNEYS 12

CONTACTLESS RAIL JOURNEYS

Notably, 2014 saw the launch of various wearable pre-paid technology products used at summer music festivals, as well as Disney’s popular MagicBand, which is used in the closed loop environment of its amusement parks. We aim to work with members to ensure a consistent customer experience across all of these applications, and importantly to excite and inspire consumers about the possibilities of new card-like payments.  Helping small businesses receive funds quicker The UK card payments industry has a considerable record of innovation designed to improve services provided to its customers. In line with this, the merchant acquiring part of the industry is set to give small businesses access to the latest payment methods to facilitate faster settlement. To deliver this vision, UK Cards has coordinated a project alongside acquirers and HM Treasury, the results of which will enable acquirers to offer Faster Payments clearing. This project will assist small businesses through getting their money to them sooner, improving cash flows and reducing borrowing costs.

ANNUAL REPORT 2015

The fast-changing pace of digital payments is altering the established role between retailers and acquirers as well as between card issuers and customers. As the internet and mobile devices reshape commerce, payments need to keep up with changing consumer behaviour. We want to take a proactive stance in the debate over omni-channel aspirations, seeking partnerships beyond the confines of the payments industry, including in the telecoms sector. To this end, we are working to identify the collaborative steps that will be needed to create mass scale adoption of digital and mobile payments. This has included hosting a number of practical workshops for our members on the deployment of tokenisation and Host Card Emulation (HCE).

Securing customer data – tokenisation and biometrics A key piece of work during 2014 has centred on the future role of tokenisation (replacement of the customer card account number with an alternative number to avoid exposure and reduce risk) in fraud prevention. As part of this, we have contributed to shaping two draft standards. The first, from EMV Co, provides a framework for payment tokenisation, while the other from the PCI-SSC covers nonpayment tokenisation. These standards are at the centre of the new wave of anti-fraud initiatives in the global payments market and UK Cards continues to contribute to the process to ensure the best results for consumers.

An area of increasing interest is the future role of biometrics, with some companies already using voice, finger vein and finger print recognition. Present Biometric deployments include the roll-out of ApplePay and MasterCard’s Zwipe collaboration in Norway. The introduction of biometric applications into consumers’ daily lives widens their appeal, and places further impetus on the payments industry to adopt the technology as a preferred security standard. Politicians are also becoming interested in the role biometrics can play, with the Parliamentary Science and Technology Committee investigating the benefits and challenges of using biometrics across the public sector and industry, including an assessment of whether more legislative protection is needed to ensure the security of consumer data. We believe the biometric industry needs to demonstrate that it is capable of supporting the scale required for retail payments, while also offering rejection rates that are acceptable to both banks and consumers.

Number of Contactless Transactions 40 35 30 25 Millions

Omni-channel payments

20 15 10 5 0 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14

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THE UK CARDS ASSOCIATION

Contactless Cards – Transport for London The rollout of contactless payments across the London transport network demonstrates the role that UK Cards can play in facilitating cross-industry collaboration, with a view to bringing new services to consumers. Enabling consumers to benefit from the convenience of contactless transactions on transit systems has been an important project for the card payments industry. London has been the first city to deliver a variable fare model, with UK Cards bringing together issuing and acquiring members, as well as the three card schemes, to assist TfL with technical expertise in achieving the vision. Given the scale of delivering the technology across mass transit in a leading global city, the project has been keenly followed by transit operators across the world, with many planning to adapt this successful model of collaboration with the card payments industry.

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The London programme is being rolled out in four phases. The first enabled contactless cards to be used on buses in December 2013, while the second focused on expanding the technology across to the wider transit network of tube, train and Docklands Light Railway from September 2014. It is now unnecessary for Londoners to top-up their Oyster balances or buy paper tickets, with fares being charged directly to their payment card accounts. Importantly, this incorporates the benefits of both weekly and daily capping. Phase three will deliver a season ticket capability on contactless payment cards, and phase four will strengthen the current Oyster proposition.  From early in the process, UK Cards has hosted and facilitated discussions to create a business transaction model, while remaining sensitive to competition constraints between members. A key part of the work was to map out the customer’s journey when using their contactless card on the bus or tube, and to identify where things could go wrong. This helped us create common agreed terminology to help customers deal with problems, which then fed into online and call centre material. 

Various barriers were overcome through this model of collaboration. For example, in cases where a customer does not have sufficient funds to pay for a journey that has been taken, the risk of nonpayment is now shared between the issuer and the transit operator. Moreover, we were able to manage the requirements of the Payment Services Directive (PSD), which was developed before contactless payments on transit were envisaged. At an early stage, it was recognised that card clash – where more than one contactless card is placed on the reader at the same time – was going to be a customer service challenge. In response, a package of communication measures was developed to encourage behavioural change among passengers when they pay at the tube gates, ensuring users only touch one card on the reader. As a result, ‘card clash’ numbers have been kept to a minimum and are steadily declining. We look forward to the next stages of the TfL programme. The model created in London can now be tailored elsewhere, and UK Cards is already facilitating discussion with other transit operators and the Department for Transport to achieve this objective. Importantly, the programme has also given us the opportunity to support the Penny for London initiative, which allows Londoners to sign up to make a donation to charity each time they touch into the transport system.

ANNUAL REPORT 2015

Providing leadership in fraud prevention UK Cards is committed to maintaining the integrity of card payments and tackling any threats to the security of transactions. We are the main sponsor for Financial Fraud Action UK (FFA UK), which is responsible for leading the collective fight against fraud in the UK payments industry. FFA UK’s key aims are: • To provide a single cohesive industry voice on financial fraud • To lead collaborative industry-wide activity to prevent and control financial fraud • To uphold the reputation of the industry by demonstrating its record on fraud prevention FFA UK does this by: • Delivering UK-wide education and awareness campaigns to inform customers about threats and how to stay safe • Providing a central hub for intelligence-sharing between the banks and the police

The changing picture of fraud FFA UK publishes the official fraud losses for the UK financial services industry, as well as acting as the definitive source of industry fraud statistics and data. Fraud losses on UK cards totalled £247.6 million between January and June 2014, showing a 15% increase from losses of £216.1 million in the equivalent period of 2013. While losses have risen against recent trends, this figure is still down 19% on the equivalent period in 2008 when fraud was at its peak (£304.2 million). Indeed, as a proportion of spending, card fraud has remained flat at 7.4p for every £100 spent during first half of 2014. Losses due to remote card purchases (those made online, over the telephone or by mail order) rose to £174.5 million in the first six months of 2014, up 23 per cent from £142.0 million in the same period in 2013. Within this total, the e-commerce fraud loss is estimated to be £110.0 million, up 23 per cent from an estimated £89.5 million in the first half of 2013.

While significant, this rise needs to be viewed in context of the increase in internet shopping by British consumers, with spending up from an estimated £40.5 billion in the first half of 2013 to an estimated £47 billion in the same period in 2014, according to IMRG*. Card payments are the main driver of online spending growth as they provide the most effective way to pay online. Over the last decade, banks have introduced a number of enhanced security features including Chip & PIN, online shopping protection and more sophisticated detection processes. These changes have had a considerable impact, with high street losses falling by 72% since 2004. However, an effect of this has been that fraudsters have changed their approach, reverting to oldfashioned deception techniques aimed at tricking customers into parting with their financial and personal information, including passwords, PINs and payment cards. Intelligence from the banks and police suggest that a major driver for increased losses over recent years has been this change in modus operandi.

*http://www.imrg.org/indexes-data

• Managing priorities for work through an Industry Strategic Threat Management process • Facilitating law enforcement, including through sponsoring the Dedicated Cheque and Plastic Crime Unit (DCPCU) • Providing expert risk assessments of new technology, legislation and regulation, and influencing partners to improve systems

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THE UK CARDS ASSOCIATION

Education and awareness campaigns As criminals focus on deception crimes as a means of circumnavigating security features, the industry continues to put a high priority on education and awareness. Vishing, a phone scam where criminals call victims while posing as bank staff or police, continues to be a major threat, with losses attributable to this scam having trebled over the last year. To address this, FFA UK coordinated a Joint Declaration of the Banks, Building Societies and Card Issuers in December, which delivered agreed messages on steps the banks will never ask customers to take in a genuine call (including disclosing the four digit PIN, and transferring money into another account). This was announced through a major advertising and PR campaign, and received support from the FCA, Which?, Citizens Advice, the Association of Chief Police Officers (ACPO) and Neighbourhood Watch. Further work is planned for 2015 in disseminating the Joint Declaration. During the middle of 2014, we became aware of a new pattern of criminals adapting the attack method by using ‘Caller ID spoofing’ technology to make victims’ phones display the telephone number for their bank. In response we launched a high-profile warning to consumers of this new tactic, reinforced with substantial TV and radio coverage.   

AS A PROPORTION OF SPENDING

CARD FRAUD HAS REMAINED FLAT AT 7.4p FOR EVERY £100 SPENT DURING THE FIRST HALF OF 2014

FFA UK also launched an awareness campaign in October to highlight the dangers of deception crimes to businesses and public bodies. This was in response both to the rise of Vishing in relation to business customers, and also the increasing problem of fake invoices. To ensure maximum reach, FFA UK participates in the Home Office ‘Protecting People from Cyber and Financial Crime’ group, which is a body designed to facilitate collaboration and joined-up messaging across fraud awareness activities. An example of wider alliances is our partnership with Neighbourhood Watch, which has led to fraud prevention messages being disseminated across their network of 35,000 contacts nationwide. In January, working with the Edconnect and Telecommunications UK Fraud Forum, FFA UK launched the schools campaign ‘Out of Your Hands’, which cascaded advice to pupils about looking after personal information.

Fraud as a ratio of card spending (excludes cash acquisition)

Intelligence Sharing FFA UK, on behalf of UK Cards, continues to be the focal point for fraud intelligence and data-sharing across the retail banking community. This enables banks and card issuers and acquirers to track changing patterns in offending and supports the police in bringing criminals to justice. The coordination that is made possible by our Fraud Intelligence Sharing System (FISS) allows us to share insights on the changing fraud landscape with the National Fraud Intelligence Bureau (NFIB) and the National Crime Agency (NCA). During 2014, FFA UK deepened its national intelligence-sharing role through contributing to the Cyber Security Information Sharing Partnership, which facilitates coordinated action against cyber threats across different sectors. This membership ensures that UK Cards and FFA UK remain at the forefront of national intelligence-gathering and data sharing work.

Annual fraud losses on UK-issued cards 2003-2013

0.30

700

0.25

600 500 £ millions

%

0.20 0.15 0.10

300 200

0.05

100 0

0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Credit

16

400

Charge

Total

Debit

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Lost/stolen

Mail non-receipt

Card ID theft

Remote purchases

Counterfeit

ANNUAL REPORT 2015

Facilitating law enforcement The Dedicated Cheque and Plastic Crime Unit (DCPCU) is a special police unit which consists of officers from the City of London and Metropolitan Police, working alongside industry fraud investigators. Established in 2002, the Unit is fully sponsored by the payments industry through UK Cards and FFA UK, the members of which invest nearly £3.4m per year in its operation. The DCPCU’s national remit is to identify and target the organised criminal gangs responsible for payment fraud, and over 12 years the Unit has achieved £470m in fraud savings – with the current rate equivalent to £800,000 per week. The DCPCU’s performance figures for the first nine months of 2014 have outstripped previous results, demonstrating that the Unit continues to produce strong returns for industry. The number of arrests during this period was 133, up from 107 in the comparable period in 2013, and this change represents a 24% increase. Alongside this, the number of charges brought against defendants increased by 46 per cent to a total of 94. Those convicted of crimes following work conducted by the DCPCU over the year received a total of nearly 79 years’ imprisonment.

Assessing risks of new technology and influencing partners In addition to the work described under its core priorities, FFA UK has: • Successfully lobbied the mobile and landline operators to tackle a vulnerability exploited by criminals to deceive customers over the telephone. The roll-out of a series of changes will address the problem of criminals keeping the telephone line open to convince victims they are making a new and ‘safe’ call to the bank • Undertaken work alongside the telephone companies to prevent fraudsters exploiting their infrastructure to commit payment fraud. An example of this work was the development of new authentication measures to prevent ‘SIM swapping’ as a means of impersonating victims. Alongside this, we have been working with our partners in this area to address Caller ID spoofing and misuse of telephone redirects.

“Our long-standing partnership with the payments industry has delivered a record which has received praise right the way up to the Home Secretary. 2014 has been a year of rising arrest and charging figures, representing even greater activity, and deepened international partnerships which reflect the cross-border nature of financial crime. On behalf of my officers, we are grateful for the continued support of our industry colleagues, and look forward to building on recent successes during 2015.” DCI Perry Stokes Head of DCPCU

Examples of DCPCU operations during 2014 Operation Sandhaven A sophisticated criminal gang was sentenced to a total of 15 years imprisonment at The Old Bailey for attacking cash machines and stealing the card details of 36,000 people across the UK. DCPCU officers raided properties across north London in December 2013 where they found dedicated factories designed to manufacture equipment used to steal card details from unsuspecting ATM users. Card skimmers, cards traps, cloned cards and spy cameras were all seized in what was described by officers as a “fraudster’s utopia”. The card details recovered had a street value of £16m.

Operation Heritage This ongoing operation emerged from pro-active targeting of a career fraudster who heads an organised criminal gang engaged in the purchase of compromised UK credit card details from overseas. The criminal group uses companies such as www.192.com to legitimately purchase information on the intended victims such as previous addresses, dates of birth, and details of co-habitants. Once this information is collated the suspects then call banks to order new PINs and cards or complete high value purchases over the internet, with losses to date estimated to stand at £400k.

£470 MILLION SAVINGS

9CO4NV% ICTION RATE

DCPCU HAS, SINCE 2002, ACHIEVED

£470 MILLION OF FRAUD SAVINGS AND UPHOLDS A

94% CONVICTION RATE www.financialfraudactionuk.org.uk

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THE UK CARDS ASSOCIATION

Communications and Charitable Giving

UK Cards seeks to engage and inform our partners and consumers, including through the media. To that end, over 2014, we:

RESPONDED TO

694 MEDIA ENQUIRIES

ISSUED 46 PRESS RELEASES AND MEDIA ALERTS

SECURED

2,396

CONDUCTED 195

BROADCAST INTERVIEWS

PIECES OF MEDIA COVERAGE FEATURED IN OVER

13 HOURS

SECURED 103,269 COLUMN INCHES

OF TV AND RADIO

Charitable Giving Since 2006, UK Cards has been the proud sponsor of the Internet Watch Foundation (IWF), which ensures the removal of online child sexual abuse images. The financial support given by UK Cards enables the IWF to acquire and deploy the best technology in assessing criminal content, as well as to continually build upon its expertise in removing such material.

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For many years, UK Cards has worked alongside charities to waive card payment fees for campaigns which meet our qualifying criteria. During 2014, such qualifying appeals included Disasters Emergency Committee (DEC) appeals on the Ebola crisis and Gaza, as well as our usual support for Children in Need, Sports Relief, and Cancer Research.

1. The UK Cards Association press office also covers Financial Fraud Action UK and the Dedicated Cheque and Plastic Crime Unit. These figures include media coverage and enquires across the three organisations, which collectively represent both the card payments industry and the financial fraud prevention community. 2. The value of the media coverage is based on the cost of buying the equivalent amount of advertising space in that media outlet.

ANNUAL REPORT 2015

The copyright in this document belongs to The UK Cards Association Limited. This document must not be copied, republished, resold or disseminated in whole or in art without the express permission of The UK Cards Association Limited. This document is provided for information purposes only. While every effort is made to ensure the accuracy of any information or other material contained in this document, it is provided on the basis that The UK Cards Association Limited (and its members, either individually or collectively) accept no responsibility for any loss, damage, cost or expense of whatsoever kind arising directly or indirectly from or in connection with the use by any person of any information or other material contained herein. You must seek independent professional advice before relying on any information contained herein; reliance is at your own risk. Use of the information or other material contained in this document shall signify agreement to this provision. © The UK Cards Association 2015 www.theukcardsassociation.org.uk £1,500

£750

www.financialfraudaction.org.uk

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The UK Cards Association 2 Thomas More Square, London E1W 1YN Telephone 020 3217 8200 www.theukcardsassociation.org.uk

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