MasterCard 2011 Annual Report Download - page 24

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affected, and may continue to affect, many of our customers, merchants that accept our brands and cardholders
who use our brands, which could result in a material and adverse impact on our prospects, growth, profitability,
revenue and overall business” in Part I, Item 1A of this Report.
Payment System Integrity
The integrity of our payment system can be affected by fraudulent activity and illegal uses of our products
and our system. Fraud is most often committed in connection with lost, stolen or counterfeit cards or stolen
account information, often resulting from security breaches of third-party systems that inappropriately transmit,
process or store cardholder account data. See “Risk Factors-Business Risks-Account data breaches involving
card data stored, processed or transmitted by us or third parties could adversely affect our reputation and
revenue” in Part I, Item 1A of this Report. Fraud is also more likely to occur in transactions where the card is not
present, such as e-Commerce, mobile commerce, mail order and telephone order transactions. Security and
cardholder authentication for these remote channels are particularly critical issues facing our customers and
merchants who engage in these forms of commerce, where a signed cardholder sales receipt or the presence of
the card or merchant agent is unavailable.
We monitor areas of risk exposure and enforce our standards to combat fraudulent activity. We also operate
several compliance programs to help ensure that the integrity of our payment system is maintained by our
customers and their agents. Key compliance programs include merchant audits (for high fraud, excessive
chargebacks and processing of illegal transactions) and security compliance (including our MasterCard Site Data
Protection Service®, which assists customers and merchants in protecting commercial sites from hacker
intrusions and subsequent account data compromises) by requiring proper adherence to the Payment Card
Industry Data Security Standards (PCI DSS). Our customers are also required to report instances of fraud to us in
a timely manner so we can monitor trends and initiate action where appropriate.
Our customers generally are responsible for fraud losses associated with the products they issue and the
merchants from which they acquire transactions. However, we have implemented a series of programs and
systems to aid them in detecting and preventing the fraudulent use of MasterCard products. We provide
education programs and various risk management tools to help prevent fraud, including MasterCard
SecureCode®, a global Internet authentication solution that permits cardholders to authenticate themselves to
their issuer using a unique, personal code, and our Site Data Protection program to advance adherence to the PCI
DSS. We also provide fraud detection and prevention solutions, including our suite of fraud management
products and services, Expert Monitoring System, and DataCash fraud prevention tools for e-Commerce
merchants.
Enterprise Risk Management
MasterCard faces a number of risks in operating its business (for a description of material risks, see “Risk
Factors” in Part I, Item 1A of this Report). Managing risk is an integral component of our business activities and
the degree to which we manage risk is vital to our financial condition and profitability. We have an Enterprise
Risk Management (“ERM”) program which is integrated with the business and designed to ensure appropriate
and comprehensive oversight and management of end-to-end risk. The ERM program leverages our business
processes to, among other things, ensure: allocation of resources to appropriately address risk; establishment of
clear accountability for risk management; and provision of transparency of risks to senior management, the
Board of Directors and appropriate Board committees. Our ERM program seeks to accomplish these goals by:
identifying, prioritizing and monitoring key risks; providing an independent view of our risk profile; and
strengthening business operations by integrating ERM principles and continuing to create a risk aware culture
within MasterCard. MasterCard’s integrated risk management structure balances risk and return by having
business units and central functions (such as finance and law) identify, own and manage risks; our executive
officers set policy and accountability and our Board of Directors and committees provide oversight of the
process.
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