Recent announcements from Visa and MasterCard have set the stage for the U.S. implementing EMV/chip cards.
Each has announced their roadmap, along with key policy requirements, incentive programs and deadlines. All are intended to drive the industry to widespread EMV adoption by Oct. 1, 2015.
Between now and then, all stakeholders in the payments value chain, including credit unions, will need to roll up their sleeves and face new challenges to reach that goal. That means not only upgrading physical infrastructure, but also collaborating with one another to ensure a smooth transition and seamless cardholder experience.
The good news is that the reward at the end will be great. When we cross the finish line, issuers and cardholders will benefit from lower instances of fraud, including card-present, lost and stolen and most importantly, counterfeit fraud, which currently comprises 40% of all fraud. Plus, as an added benefit, the groundwork for the adoption of contactless NFC or near-field communications and mobile payment systems will also be in place.
Impetus for Implementation
EMV has become the de facto global standard everywhere except in the U.S. Issuers here have remained loyal to magnetic stripe technology because of the low cost of online authentication and fraud scoring – a dynamic not present in Europe and other countries in the early days of electronic payments. While the U.S. has historically experienced a low rate of card-based fraud relative to other markets, fraud may migrate to the U.S. as other regions implement the more secure EMV standards. In light of increased card compromises and transaction fraud in key merchant segments, the networks have decided to accelerate U.S. adoption of EMV.
The question facing U.S. issuers is not whether to offer an EMV product, but rather what products to offer and when. Most agree there is not a pressing need to mass reissue. In fact, structured organization and coordination of industry stakeholders, including small scale test trials for EMV, have been the keys to successful rollouts in multiple countries.
So, take this time to build your plan and understand the dynamics of EMV. Roadmaps may be very different between credit unions. There is no single right path. Evaluate key questions such as what functionality and authentication the physical card should offer.
You will need to determine what products to offer and which members should be served first.
Credit cards are the most likely candidates for initial focus, given higher fraud rates and greater use outside the country. Most EMV products issued today are credit card products for select members. These are predominantly very limited rollouts. Similarly, early credit union movers should consider targeting frequent international travelers and scheduling EMV issuance to these specific segments as a part of their normal card replacement cycle in 2013.
When there’s a more immediate member need, some are introducing EMV to international travelling segments even quicker with EMV prepaid travel cards. This type of solution can help put EMV cards into members’ wallets, quickly – sometimes as soon as three weeks – and can be cost efficient.
To identify member segments that should be first in line for EMV, start by analyzing your membership base to identify cardholders with international transactions. Review spending habits in other countries to see where your cardholders are traveling to most frequently. These results are typically found in standard reports that can be requested from your payments processor. More sophisticated portfolio analytics tools and support from industry experts will also be helpful as credit unions create their migration plans.
Next, you will need to decide whether to introduce contact, contactless, or cards with both functionalities to members. It should be noted that mag stripe will still be with us for a while and EMV plastics will also be enabled with mag stripe due to merchant acceptance technology at the point of sale.
Early movers face a complex decision. Contactless, for example, is popular with quick service restaurants, convenience stores, and transit authorities because of the high transaction velocity. It is unclear, however, if other merchant categories will adopt physical chip readers or contactless pads going forward.
While you want to provide the most convenient and flexible option for members, some may hesitate to offer dual function plastics, both contact and contactless, that can be nearly twice the cost compared to a single function card. To date, early movers like Chase have opted to issue contact cards for their clients.
Credit and debit EMV cards can be authorized with a PIN (chip/PIN) or with a signature (chip/signature). The majority of merchant terminals will support both so it will be up to you to decide which authentication method to offer. On one hand, preserving signature verification avoids the member learning curve, especially with credit cards, that will be necessary if PIN becomes the universal standard in the U.S. Conversely, chip/PIN transactions are generally perceived to be more secure, particularly among merchants.
Thus far, U.S. issuers are split in their approach for requiring PIN or signature verification on EMV transactions, as are Visa and MasterCard. Visa is supporting signature authentication, while MasterCard prefers PIN authentication.
If you go the chip/PIN route, issuers will need to decide on online-only or both offline and online capable. The U.S. is an all online all the time authentication environment. However, when traveling abroad, cardholders may run into instances where only offline PIN EMV cards are accepted. These are very limited, but typically include unattended devices in France and the United Kingdom. Some examples are transit terminals, French toll roads and some European gas pumps. Credit unions will need to weigh the added expense of enabling offline functionality with member convenience and satisfaction.
Needless to say, in the coming months ahead, credit unions will need to make important decisions around EMV. Deciding between the various options will require not only concrete research but also making educated assumptions regarding how the market will evolve. Without a doubt, it is a complex proposition. However, by following these three steps, your credit union will successfully cross the EMV finish line and be ready to match your members’ needs stride for stride.
Define the roadmap and strategy that’s right for your credit unions and members. Understand and navigate critical choices, including product segmentation, card functionality and card authorization. Consider budget implications, as well as benefits in reduced fraud. Finally, develop a migration plan that minimizes expenses, maximizes savings and ultimately ensures member satisfaction.
Bob Hackney is president of CSCU.
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