the global payments standard - is your fi ready?

8/8/2019 The Global Payments Standard - Is Your FI Ready?

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The Global Payments Standard –

Is Your FI Ready?By Aris Jerahian, TMG Vice President of Client Relations

Chip-and-PIN technology to support EMV

(or the Europay-Mastercard-Visa standard)

exists or is very near existence in nearly every

developed country in the world. And that’s

creating problems for the U.S., which has

remained steadfast in its continued use of

magnetic-stripe cards.


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P A G E 2

The Members Group . 1500 NW 118th Street . Des Moines, Iowa 50325 . 800.268.1884 . www.TheMembersGroup.com

U.S. FEELING THE PRESSURE

The threat that has industry observers most concerned is the much-

discussed path o least resistance that near-global EMV adoption

is creating or raudsters. Criminals thwarted by the tough-to-skim

EMV chip cards are ollowing that path straight to our shorelines,

posing tremendous risk or American card issuers, merchants and

cardholders.

EMV is still airly new, yet we have already seen its impact on raud.

Canada alone reported a more than 20 percent decline in overall

credit card raud or 2009 as compared to 2008.1 The raud loss rate

on payment cards in the U.K, the rst country to ully implement

EMV, declined rom 18 basis points to 12 basis points between 2001

and 2008.2 O course, there is no way to validate this decrease is

due solely to EMV adoption.

As card issuers

feld an increasing

number o

complaints about

the ineectiveness

o cards overseas,

the pressure to

satisy these

cardholders grows.

While raud concerns dominate, the ability o Americans to use their U.S.-issued cards to

pay oreign merchants is another key reason many are calling or U.S. adoption o EMV.

As card issuers eld an increasing number o complaints about the ineectiveness o cards

overseas, the pressure to satisy these cardholders grows.

COMING TO AMERICA

There are indications rom several ends o the payments industry spectrum that U.S.

adoption is considered likely – i not inevitable.

First, and perhaps most telling, the Federal Reserve Board has put together a orum o business and industry players to examine the uture o EMV in the U.S.3 As reported by

Bank Technology News, the orum’s leader stated that “the growing security vulnerabilities

posed by magnetic stripes may warrant policy action by the government.”

Major domestic retailers have also taken steps to prepare or what company executives seem

to believe is an eventual mainstream adoption o EMV cards. Walmart, alongside others

like Home Depot, has been open about its intent to ready its domestic outlets or EMV

transactions.

Announcing that its stores already have the necessary hardware, Walmart told attendees

o a recent NACHA convention that it expects to accept at least one EMV card by the endo 2010.4

1 “U.S. Signature-Based Card Fraud Next on Hacker Lists?” PaymentsSource, Sept. 24, 2010

2 “Top 10 Reasons U.S. Should Consider EMV,” Smart Card Alliance Webinar, January 26, 2010

3 “The Fed Gets Involved with EMV,” Bank Technology News, September 2010

4 “Is the United States the Weakest Link When It Comes to Credit Card Security?” SC Magazine, Sept. 29, 2010



P A G E 3

For its part, Home Depot has publicly proclaimed its ears about the potential rise in card

raud and cited EMV as a possible solution. The retail chain’s director o international and

interchange nancial services recently told ISO & Agent magazine, “Moving to EMV would

eliminate most point-o-sale raud on signature-based transactions, which would eliminate a

huge area o losses.”5

The U.S. government and merchant community seem to be on the same page. But what

about card issuers? Without their buy-in to the business case o making EMV available to

cardholders, the payments standard can’t get o the ground.

Research suggests most top U.S. issuers will make EMV cards available within the next

several years – to select cardholders, that is.6 These consumers will be the international

travelers looking to make transactions and ATM withdrawls outside o the U.S. Catering to

this group o cardholders, which spends on average six times more than their homebound

counterparts and comprises nearly 4 percent o all credit card spending, makes sense or

issuers – particularly those still reeling rom the prot-shrinking eects o the Credit CARD

Act o 2009.

Small issuers may be tempted to shrug o this particular prediction because their cardholders

do not travel abroad with as much requency as those o the top U.S. issuers. However,

neighboring countries Canada and Mexico are each very near completion o their

countrywide conversions to EMV. American cardholders who enjoy shing in the north

and sunning in the south may soon nd themselves in the same mess as European travelers,

particularly i these countries ollow Europe’s plan to ban mag-stripe transactions altogether.7

The entree to the payments scene o technologies bridging mag-stripe to EMV is another

indication that we are closer than ever to achieving adoption o the global payments

standard here in the U.S. Take TMG partner First Data Corp., or instance. By testingSTAR CertiFlash, a chip sticker technology it says will oer higher security to debit account

holders, the company is preparing not only or EMV adoption, but or the mobile movement

gaining steam in the U.S.8


In a sign even closer to home, TMG recently aided client United

Nations Federal Credit Union (UNFCU) in its migration to EMV

cards. Members o the $3.1 billion credit union carry UNFCU-

issued credit cards as they travel to and rom United Nations agency

destinations like Geneva and Nairobi. The goal to balance members’

access to credit with raud protection made adoption o EMV a

strategic move or the member-centric nancial institution (FI).

Research suggests most

top U.S. issuers will make

EMV cards available within

the next several years –

to select cardholders, that is.

5 “U.S. Signature-Based Card Fraud Next on Hacker Lists?” PaymentsSource, Sept. 24, 2010

6 “Chip Cards in the U.S.,” The Nilson Report, #930, July 2009

7 “U.S. Magnetic Stripe Credit Cards on Brink of Extinction?” CreditCards.com, August 4, 2009

8 8 “A Step Closer to EMV” Bank Info Security , September 3, 2010



P A G E 4

UNFCU Card Services Manager Merrill Halpern likens EMV cards to an “insurance

certicate” or cardholders, reassuring them that every transaction they make is as secure as

possible. For that reason, UNFCU introduced this technology to its membership.

“For UNFCU, the EMV card is all about service,” said Halpern. “While important or the

global traveler, the cards also bring a higher level o security to the domestic cardholder,

extending beyond mag-stripe technology.”

EMV BENEFITS FOR CARD ISSUERS

So, is the timing right or your FI to begin an EMV program? When it comes to analyzing

the business case or EMV, issuers must examine both sides o the decision. Does an EMV

oering make sense or our FI and its cardholders – both those we currently serve and those

we would like to in the uture?

Advantages to launching an EMV card program generally all into one o our categories,

including the ability to:

1) increase security and fraud prevention;

2) boost cardholder loyalty;

3) retain and attract higher spending cardholders; and

4) grow your card portfolio.


Security

EMV promises to change the way credit and debit card point-o-sale transactions are

authenticated by veriying that the person attempting to use the card is authorized beore

the transaction takes place. As it stands today, mag-stripe transactions authorized online are

based on sucient unds and the current standing o the account, not whether the person

swiping the card is, in act, an authorized user.

With chip-and-PIN technology, criminals attempting to use a stolen or cloned card won’t

make it past the swipe because they would also need to know the PIN associated with

the card.

What’s more, the microprocessor embedded within the card’s plastic has the ability to storedata more securely than a mag-stripe. Unique security keys placed in the microprocessor

make the cards more resistant to cloning.

ADVANTAGES

TO LAUNCHING

AN EMV CARD

PROGRAM



P A G E 5

As an added security benet, chip-and-PIN technology allows or ofine authentication

with no data or communication leaving a terminal. These terminals are oten unmanned

and are popular in Europe at parking garages and train stations, or example. When a

cardholder needs to make a purchase through an unmanned terminal, he or she inserts the

EMV card, which is kept inside the terminal until the transaction is complete. The terminal

communicates directly with the EMV card’s chip, veriying not only the PIN but the

transaction details, such as amounts and transaction counts or the day. No communication

leaves the terminal. The inormation is stored directly in the chip.

Loyalty

Simply put, cardholders who get what they expect rom their cards will use them again.

When declines become too burdensome, an international traveler will likely go in search o

a solution – all too oten provided by a competitor. By issuing the most reliable card possible,

FIs increase their share o wallet and turn customers into cardholders-or-lie.

Attraction

It’s true that EMV is ar rom mainstream, but as mentioned above, retailers, technology

providers – even the government – are preparing or what many believe is an inevitable

adoption o EMV on the home ront.

By preparing or EMV now, your FI not only positions itsel or uture growth, it attracts a

specic cardholder today. That cardholder is an international traveler spending six times

more than the average American cardholder.

Growth

Beyond growing the number o accounts by attracting the high-spend travelers, FIs stand

to grow their interchange income – a revenue stream likely to undergo changes in the very

near uture as the Federal Reserve Board regulates debit card ees. By ensuring that your

cardholders will be able to use your FI’s card virtually anywhere, you place a near-guarantee

that yours will be the card at the top o your cardholders’ wallets – not only when they

travel, but while home, as well.

UNFCU BLAZES THE TRAIL

To strengthen security, as well as add another benet to its already impressive credit card

oering, TMG client United Nations Federal Credit Union (UNFCU) completed its rststage o credit card conversion to EMV in October o 2010, making it the rst FI in the U.S.

to commit to the technology.9


9 “United Nations FCU Becomes First Chip and PIN Card Issuer in the U.S.,”

Credit Union Times, May 26, 2010



P A G E 6

The credit union aced an above-average raud exposure due to its

international-traveling membership. Fraud strategies common among

credit unions o this size – such as declining transactions in high-

raud regions – are not possible or UNFCU, whose nearly 90,000

members rely on access to credit rom some o these very locales.

Considering the hard costs and benets o net raud reduction,

interchange leakage, and direct investment, EMV migration was

the optimum decision to make.

UNFCU’s EMV card – which also includes a magnetic stripe to

make domestic transactions possible – is known as the Visa Elite

Card, which carries with it the same eatures and benets as its

predecessor, Visa Platinum. These include low interest rates, a

limit up to $100,000, worldwide VIP airport lounge access and

concierge services, and a slew o additional perks important to

requent travelers.

IMPLEMENTING AN EMV CARD PROGRAM


To strengthen security

as well as add anothe

beneft to its already

impressive credit

card oering, UNFCU

completed its frst

stage o credit card

conversion to EMV

in October o 2010,

making it the frst FI in

the U.S. to commit to

the technology.

Beore beginning an EMV conversion, FIs must complete due diligence when selecting

the partners they will work with throughout the process. By the nature o their business

relationships, card processors have the potential to serve as an excellent resource, as well

as an overall project manager or an EMV conversion.

Four questions to ask your processor before going EMV

Do we have a business case for EMV?This is where all FIs must start when examining whether or not to move orward with an

EMV program. A great place to begin this analysis is with your existing card processor, who

is already amiliar with the strengths and weaknesses o your card portolio. What have your

raud losses amounted to, and is that number likely to be improved with an EMV program?

How oten have your cardholders been declined overseas? What will EMV implementation

likely cost, and is there a business case or moving orward?

Can you offer end-to-end guidance throughout the process?

Because your FI is likely to work with many dierent vendors throughout an EMV

conversion, it’s important to have one point o contact who can serve as a trusted project

manager. Card processors can be an ideal leader, as they oten have solid relationships withthe vendors who will produce the card, validate and certiy transactions and understand

the regulatory and processing requirements. Ask your card processor i they have specic



P A G E 7

experience implementing an EMV program and whether or not they have the ability to

make recommendations rom outset to completion.

Do you have support tools that will make the transition to EMV easy for our cardholders?

While convenience is one o the driving actors or adoption o EMV, getting there takes time.

Cardholders will inevitably have questions with regard to the use o their cards, such as what

to do i they’ve orgotten their PIN, how long it takes or an ofine transaction to post and

where they can nd a domestic chip-and-PIN location. A processor that understands how an

EMV transaction fows through the authorization channels dierently than a typical mag-stripe

transaction will be an invaluable partner, not only to you, but to inquiring cardholders.

Can you prepare us for the challenges we will face?

Key to selecting a partner is understanding whether they have been through the EMV

conversion process. Processors like TMG, which UNFCU has called “instrumental” in the

implementation o its EMV program, have specic knowledge rom which other FIs can

benet. For instance, experienced advisors will recommend detailed testing and certication

plans, as well as provide context around decisions your FI will need to make, such as whatlimits to place on ofine transactions or whether or not to allow or cardholder-selected PINs.

Without U.S. mainstream adoption, EMV will never truly become the global payments

standard. Payments innovators no doubt will unleash new and exciting alternatives to EMV

over the next ew years, giving us even more options to consider on behal o U.S. cardholders.

Yet, signicant signs point to a serious examination o domestic EMV adoption. Should this

oretell an inevitable U.S. participation, will your FI be prepared?

ABOUT THE AUTHOR

Aris Jerahian is vice president of client relations for TMG (The Members Group), working to establish

long-term, successful partnership with credit unions. With more than 12 years of account management,

consulting and operational experience, Aris is capable of delivering the tactics and practical advice credit

unions need to grow their card portfolios. He is the author of “Courage to Change,” which aims to help

readers improve both their professional and personal lives, and serves as a council member on the Council

of Advisors for Gerson Lehrman Group, a global network of executives who provide consultation to leaders

in the investment community.


the global payments standard - is your fi ready?

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