The $24 billion State Employees’ Credit Union is not waiting around for the widespread of adoption of chip and pin cards.
In 2011, the cooperative in Raleigh, N.C., rolled out the cards to all members enrolled in a debit card program, said Sallie Cowell, a vice president in charge of card systems.
The program involved issuing 900,000 new debit cards, a step taken by the credit union because it had heard an increasing volume of complaints from members traveling in Europe and other countries that their magnetic stripe cards were being rejected at terminals, she explained.
That left members frustrated and sometimes cashless. To correct those voids, SECU resolved to rectify matters by distributing chip and PIN cards that are readily accepted around the world, Cowell said.
“It made our members happier,” she said, adding that although chip and PIN rollout is sometimes said to be a step towards reducing fraud, SECU had not seen any changes there.
The technical reason behind the lack of change may be because U.S.-issued chip and PIN cards usually have a magnetic stripe to insure usability at point of sale and ATM devices across the country. Those stripes can still be harvested for information by fraudsters as they are with any other stripes. Experts say theoretically, the need for mag stripes may vanish as chip and PIN readers show up at more merchants.
For financial institutions, it may no longer be a question of “if” but “when” the implementation of chip and PIN card programs will become mainstream, said analyst Julie McNelley, a retail banking expert with research firm Aite Group LLC in Boston.
“Chip and PIN are coming to the U.S. We are finally going there,” McNelley said.
Largely adopted in Europe, and making substantial headway in Canada and Latin America, new generation chip and PIN cards eliminate the magnetic stripe found on old-fashioned cards, which has become a weak link for fraudsters, experts note. In its place is an embedded computer chip that is paired with a personal identification number. The result is said to be sharply more secure and much less susceptible to skimming and other traditional attacks on magnetic stripes, according to advocates.
“EMV reduces the skimming scam and makes it harder for criminals,” said Jeff VanSickel, an executive with IT consulting firm SystemExperts in Sudbury, Mass. EMV stands for Europay, MasterCard and VISA, a global standard for the inter-operation of integrated circuit cards.
The second shoe fell in favor of chip and PIN in the U.S. when both MasterCard and Visa announced their support by saying effective October 2015, fraud that occurs on a merchant point of sale terminal that is not chip and PIN compliant becomes the merchant’s responsibility.
That, McNelley said, may have put an end to many wait-and-see strategies that had been followed by uncertain merchants and financial institutions. As a result, chip and PIN deployment may be in the 2013 plans for many institutions.
SECU is already well on its way. Still, Cowell stressed that to successfully deploy chip and PIN cards, there needs be significant education of employees and members. Because the cards are dipped and not swiped at card readers, they needs to sit in the reader a few extra seconds as the device digests the information on the chip.
Cowell said another issue is that some members erroneously believed chip and PIN cards transmitted radio waves filled with personal information, which is a characteristic of some radio frequency identification cards. Member education eased any those anxieties, she pointed out.
The $3.6 billion United Nations Federal Credit Union in New York City is another credit union that decided to make an early move on the new transaction model. Last summer, it launched a chip and PIN credit card that was distributed to members whose spending histories showed significant usage in countries with high chip and PIN adoption such as those in Europe.
Distribution to the full 95,000 membership was said to be planned over the next couple years, said Merrill Halpern, card services manager with UNFCU in an August 2011 Credit Union Times interview. Halpern had not returned a call seeking an update by press time.
One issue holding up chip and PIN rollout at some institutions may be cost. Experts say unit cost per card ranges from $1 to $2. Two mailings are usually involved – the card in one and a PIN in a second. While those expenses can add up, delaying a rollout because of them could have unexpected consequences.
“If credit unions decide to wait until after 2015, they will be the prime targets for fraudsters. They will be the easy targets,” said Philippe Benitez, an executive with Gemalto, a digital security firm in Amsterdam, Netherlands and a leader in chip and PIN cards.
As to what will happen with fraudsters when chip and PIN are widely implemented here in this country?
“Card fraud will move online when chip and PIN is implemented in the U.S.,” said Gary Roboff, a consultant with Banking Industry Technology Secretariat, the Washington-based technology policy division of the Financial Services Roundtable. “That is what happened elsewhere, it will happen here. We need to implement increased protection soon. Fraud goes to where there is less friction.”