Card security technology in the U.S. is like a spinning roulette wheel. No one knows exactly where the ball will land.
Visa recently published plans to encourage U.S. retailers to shift to terminals that support new forms of payment including EMV or Europay-MasterCard-Visa-integrated circuit cards. These terminals, which are widely used in Europe, Asia and other regions, allow consumers to make payments using credit, debit and prepaid cards. The Visa plan also calls for the new terminals to support payments made via mobile phones.
The current difference in terminal technologies across the globe is based on each region’s deployment of telecommunications networks. Real-time authentication of a cardholder requires access to inexpensive telecommunications networks, which the U.S. has had for many years.
In contrast, Europe and Asia were hampered by some of the most expensive telecommunication networks in the world. To work around this challenge, chip card payment systems were developed so authentication could be performed offline. As it turns out, the EMV chip is a robust technology that not only delivers offline authentication, but also stored value, multiple applications in a single environment, contactless payments and the ability to do away with a card form factor altogether.
Visa is now pushing for U.S. implementation of chip technology and cites increased security as the reason. The company said it will let merchants that switch to EMV readers forego annual Payment Card Industry security certifications. Visa has also announced that in 2015, it will require merchants to reimburse issuers for some types of credit card fraud, which can be prevented by using EMV capable terminals. It should be noted that EMV chips can reduce counterfeiting schemes, however, they do not prevent card-not-present fraud.
Key Drivers for Conversion.
A key driver of card payment conversion in the U.S. is the need for consensus on a card security technology. For example, while some fast food and convenience store chains have embraced contactless cards, it remains a very small share of the market. Converting to EMV terminals is going to require a major investment by merchants and justifying that expense requires a standardized, scalable technology. The acceptance environment is looking for a stable, long term solution that will not require re-investment due to additional changes in requirements.
Will merchants invest in EMV terminals? What about consumer and merchant support for mobile contactless payments? Will there be a clear choice or will the marketplace demand flexible terminals that support both technologies?
The U.S. market currently appears to be in a wait and see stance about Visa’s newly issued rules. This is a classic chicken and egg dilemma. Issuers want to provide modern plastics that meet consumer demand for the convenience offered by EMV and contactless technologies. However, the utility of these new acceptance forms depends upon merchants making a major investment to upgrade terminals so they can process these payments, while the large U.S. issuers squeezed by the consequences of the Durbin Amendment reducing debit interchange evaluate the value proposition of EMV cards.
EMV Cards Offer Benefits for Overseas Travel. Because of the lack of a dominant technology, it is important that credit unions are engaged and educated about the functionality and risk management benefits of each platform. Before you initiate widespread portfolio changes, assess your membership’s card usage and then offer EMV or contactless cards to targeted members. The vast majority of overseas terminals will accept standard magnetic stripe cards. However, there are situations where unattended terminals and kiosks associated with public transit, parking facilities and ATMs require chip cards for transacting.
EMV cards offer full functionality for members who travel outside the U.S. Credit unions that promote their ability to provide EMV cards can position themselves as current and relevant in today’s market. To address the needs of overseas travelers, credit unions can also issue prepaid EMV cards that are funded with debit or credit cards.
For members who live and work overseas, EMV credit or debit cards are a much better fit. We encourage credit unions to promote EMV cards to their government, military or professional members who spend significant time abroad. It demonstrates the credit union’s ability to support new technology and serve members’ needs.
It’s also important to align your portfolio to take advantage of mobile payment opportunities by targeting heavy debit card users with a mobile debit card.
Take a Proactive Approach to Gain Market Share.
Credit unions need to watch the roulette wheel as it spins so they can take action when the time is right. Any change in technology represents an opportunity to build market share. Credit unions can evaluate their membership and design plans to roll out new cards. Then, when the timing is right, they can be first to market with cards that both meet consumer demand and demonstrate technology leadership.
Mike Kelly is president/CEO of PSCU Financial Services. Contact 727-571-4656 or firstname.lastname@example.org