This October represents a key deadline for financial institutions across the country. It marks the transition to EMV, or chip-based technology for payment cards, also known as the “fraud liability shift” set by Visa, MasterCard, American Express and Discover. Essentially, any party that hasn’t implemented EMV may be liable for the fraud that results from a magnetic-stripe payment after that October 2015 deadline.
The EMV Migration Forum estimates there were approximately 120 million chip cards in the U.S. as of the end of 2014 and expects that 600 million will be issued by the end of 2015. While large banks are now mostly onboard with EMV, most community banks and credit unions are still in the transition period and have yet to make the complete shift to chip cards. According to a recent poll from CreditCards.com, only 31% of 1,038 U.S. adults said they have received a new credit card that contains an embedded EMV chip.
While the transition to EMV may seem complex and somewhat forbidding, the fact that the U.S. is one of the last developed countries to migrate to the EMV standard means that U.S. card issuers can learn from other deployments worldwide over the last decade. Based on that overseas experience, here are four key considerations to keep in mind:
Choosing an EMV solution. One of the first decisions to make is which EMV solution meets the short- and long-term needs of the bank and its customers. There are three options to consider: contact, contactless and mobile.
Contact EMV is the form closest to what cardholders are accustomed to using at a point-of-sale (POS). Often selected as the first building block of an EMV program, these typical dip-and-pay cards are equipped with either chip-and-PIN or chip-and-signature features; both use the same chip technology that adds increased security to payments. Chip-and-PIN brings an additional security component with two-factor authentication: something you have (the card) and something you know (PIN).
The second option is contactless EMV, which has already seen success globally. According to the Smart Card Alliance, MasterCard saw an increase of 63% in annual net spend after implementing contactless EMV in Canada. Contactless EMV enables the customer’s behavioral transition from a dip-and-pay method to tap-and-pay. Cardholders “tap” their card against a payment terminal for a more convenient and speedy checkout transaction. The latest generation of contactless cards harnesses the security of EMV to enable a safe and quick way to make payments.
The last option is mobile payments with near field communications (NFC)-capable devices, which is experiencing massive growth in the market. Last year’s introduction of Apple Pay has placed the national spotlight on mobile payments. Mobile payments is also known as Mobile EMV, which enables a high level of security to banks protecting a cardholder’s account credentials directly and securely in the device. Mobile EMV uses EMV in-device security mechanisms to store cardholder information, which can then be communicated to POS terminals with NFC technology, enabling tap-and-go for fast, easy and secure payments.
Once an EMV solution strategy is in place, technology decisions must be made. What types of hardware and software are required to bring EMV to the branch? Understanding the equipment required for each type of EMV solution can help financial institutions make decisions based on how to best implement their long-term EMV plan. Some may find that hardware and software upgrades made over the last year or two can easily be adapted to EMV requirements.
Manufacturing, procurement and personalization decisions are also made at this stage. Connecting with your processor, formatting the input file that contains cardholders’ data and choosing the right EMV profile specification are just a few examples of the deliverables an experienced personalization bureau can provide.
Consider customer-centric services. The migration to EMV is creating an opportunity for banks and credit unions to change the way they interact with customers. Services such as instant issuance and card customization, for example, are becoming faster and easier to implement and represent important value-added features.
EMV-ready instant issuance technology is available that enables banks to issue secure EMV cards from their branch locations with a software-as-a-service (SaaS) application. This means customers don’t have to wait for cards in the mail and banks can more efficiently issue cards.
Card customization allows customers to choose the image on their new EMV chip card. Whether they pick the image from public or personal sources, customers are more likely to use a customized card rather than a typical payment card. Customized cards have been shown to not only increase customer retention rates and attract new customers, but revenue as well. The added social and creative components of card customization programs, such as Facebook integration, also offer a unique way to engage with customers on a more personal level.
Know the EMV acceptance timeline. The essentials needed to accept EMV transactions include EMV-ready cards, acquiring systems, issuing systems, an authorization system and clearing system and a card management system. While the deadline for EMV at the POS is October 2015, other deadlines must be taken into account. MasterCard, for example, has issued a compliancy deadline of October 2016 while Visa will enforce it in 2017. The final EMV acceptance deadline, for gas pumps, is currently set for October 2017.
Drive Cardholder Education. With a solid EMV migration strategy in place, the final step to success is educating American cardholders about the switch. There’s definitely some work that needs to be done here; only 0.3% of card-present transactions in the U.S. are made with EMV cards, according to an EMVCo analysis. Compare this to the 96.3% in Europe Zone 1 and 83.3% in Canada, Latin America and the Caribbean.
Communication from banks on what can be expected can ease customer trepidation and reinforce the security benefits that EMV delivers. It’s important to note that both credit and debit cards are available with either the chip-and-PIN or chip-and-signature technologies. This is something to be considered as banks share their EMV plans with their customers. Also, proactively answering customer questions will help users understand that magnetic stripes are antiquated and unsafe, while EMV is the future. Are you, and your branch employees, ready to answer these EMV questions?
- Why switch to EMV?
- How exactly is this more secure than the magnetic stripe card?
- How quickly can your branch issue a new card?
- Can card issuance be done on site or is it ordered and mailed?
- When will my updated EMV card be issued?
- Are there any incentives or rewards programs linked to the cards?
- Is my card equipped with chip-and-PIN or chip-and-signature?
- How do I change my PIN?
By taking all of this into consideration, banks and credit unions across the U.S. can improve their chances of successfully executing their EMV strategy by October.
Mr. Kagan is director of business development at Shoreline, a unit of Amsterdam, Holland-based Gemalto N.V. He can be reached at Vadim.firstname.lastname@example.org.