Operations

EMV is coming to the U.S.

Massive smartcard adoption will reduce fraud but require extensive replacement of cards and readers.

March 08, 2013
KEYWORDS card , EMV , mastercard , merchants , visa
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CUNA Operations, Sales & Service Council

CUNA Strategic Services alliance provider: Diebold

CUNA Mutual Group

CU 24 white paper: Understanding EMV for Credit Unions

Mass reissuance

State Employees’ Credit Union (SECU), $25.3 billion in assets, Raleigh, N.C., began adopting EMV in early 2011 when it replaced traveler’s checks with a Cash Points Global chip card that relies on online PIN authorization.

SECU began converting its debit card portfolio in July 2011 at a rate of roughly 50,000 cards per week, with its portfolio of one million cards fully switched to EMV cards by December 2011.

Buying a large number of plastic cards at one time significantly reduced costs, says Leanne Phelps, senior vice president, card services.

All cards also carry a magnetic stripe because most local merchants can’t accept EMV yet.

Staff and member education was extensive—SECU used every communication channel to offer advance information. Still, the call center had a high number of calls from members who had questions when they received their new cards.

The conversion schedule was disrupted when members called to report EMV cards were being rejected at the point-of-sale (POS), typically at small shops throughout North Carolina.

SECU contacted merchants and learned their terminals were equipped to accept EMV cards but lacked soft ware to process the transactions.

Since terminals’ default-setting prefers EMV to magnetic stripe when both options are available, merchants received an “error” message instructing them to use the chip reader for the transaction. But that option was unavailable, since few processors are currently prepared to handle EMV.

SECU worked with acquirers and processors to explain the need for a soft ware patch to instruct terminals to ignore the chip reader at this time. While

Phelps says SECU would have preferred to use EMV to process transactions, the reality was that neither processors nor merchants were ready. Phelps says educating members and staff was essential, along with keeping the program as simple as possible.

She recommends, for example, color coding cards by portfolio segment, which allows call center staff to identify the segment experiencing problems by asking members about the color of their cards.

More issues ahead

Monthly EMV transactions hovered near 2,000 in 2012, but Phelps expects that number to rise dramatically after April 2013 when Visa and MasterCard deadlines direct processors to prepare for EMV.

“As more merchants come on board, there’s going to be another round of education required,” Phelps explains.

The Durbin Amendment offers another challenge because there’s no EMV solution currently available allowing merchants to designate how to route PIN-based transactions.

Phelps says offering a magnetic stripe has addressed Durbin’s dual-routing requirement so far, but this approach will be insufficient when EMV becomes the standard for processing transactions.

“One of the big dilemmas in the industry is the dual-routing requirement,” Phelps says. Durbin requirements apply to debit cards only.

Payments convergence

Consumers’ anticipated adoption of mobile payments is expected to have a major impact on EMV. Some experts, including Davidson, advocate adding dual capabilities for NFC so EMV chip cards also can be used for contactless payments.

Others experts recommend waiting to learn whether consumers will prefer to use smartphones for mobile payments, rather than chip cards. Fie switch isn’t expected to eliminate chip cards, but it could affect usage.

“To get the penetration that’s needed, there must be some degree of convergence with mobile,” UNFCU’s Halpern says. UNFCU introduced mobile banking in 2012 and Halpern envisions a future market role for the integration of secure chip technology with mobile functionality.

Phelps says SECU plans to focus contactless payments on mobile devices and won’t add the capability to EMV cards.

Industry cost estimates of EMV cards vary, with some estimates as high as $10 per card (shipped to the consumer). Visa says that “increasing adoption in the U.S. and globally is bringing prices down to less than $1 per card.”

Experts also note that even EMV cards can be vulnerable to fraud. While EMV features make it more secure against counterfeit fraud in a chip-and-PIN environment, chip cards are just as vulnerable as magnetic stripe cards when used for card-not-present transactions, such as for online purchases.

The complexity of launching EMV cards makes the timing for introducing the cards to members all the more important. “It’s ever so critical that credit unions not sit back and wait,” Davidson says. “Get a plan in place and get it on your radar with a future delivery date.”

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