Have questions about EMV/chip cards?
We have the answers.
Q: What are the benefits and disadvantages of EMV/Chip Cards?
A: The primary benefits of EMV are a more secure payments environment, reductions in counterfeit fraud and improved cardholder experience for transactions abroad where EMV has already been implemented. Disadvantages include higher costs and new processes. Plus the dynamics of EMV are complex with many unknowns still in the U.S. market. Careful planning, a thorough evaluation of EMV considerations and related impacts will optimize the go-to-market strategy for credit unions and ultimately members.
Q: Will there be any adverse impact to our members?
A: No. In fact, international travelers will mostly like have an improved transaction experience paying with an EMV card since EMV is already used by many merchants outside the U.S. In the U.S., cardholders will have a new transaction experience with EMV. Transactions will be completed by inserting the card into the reader or tapping, not swiping it. Cardholders may also being entering a PIN for debit and potentially even credit transactions. Credit unions can ensure a smooth transition to EMV and a positive cardholder experience by thoroughly communicating with members about the changes. Develop a member education program that focuses on what the new cards will look like, how POS interaction will change, why the change is occurring and when it will occur.
Q: Does EMV apply to debit and credit cards?
A: Yes; however, there are still some outstanding questions around debit and how to ensure that the technical design of EMV will comply with the Durbin regulations. Credit unions may want to consider introducing EMV with their credit card program first, targeting membership segments such as international travelers and high-value members.
Q: Exactly how do they work?
A: EMV utilizes an integrated circuit or chip to generate dynamic data or changing cryptograms that are unique each time the card is inserted into or tapped on an EMV-enabled POS terminal. Dynamic cryptograms are validated in the authorization process, and are new to the payments transaction process (i.e. they do not occur via mag-stripe today).
Q: Is cardholder verification different? I've heard I'll need 2 PINs to use an EMV card?
A: It will be up to the issuer to decide what cardholder verification methods they will support, with our guidance:
- Chip & Signature, or Chip & Signature Preferred – The cardholder signs for purchases with no signature required rules likely applying like they do today.
- Chip & PIN – The cardholder PINs for credit and debit transactions. Some cards could have a separate online and offline PIN, but that is unlikely that an issuer would support two PINs, and would instead employ PIN synchronization strategies.
Q: What do we need to do to be ready for EMV cards?
A: Below is a list of actions you can start now:
- Get educated on EMV, with a focus on technology and timelines.
- Begin conversations with all partners (processors, networks and card producers) to learn more about EMV and required changes. Obtain partner EMV timelines and understand related impacts.
- Monitor news surrounding EMV to understand key developments, potential changes to the timeline, and lessons learned from larger issuers that have converted or are converting.
- Consider prioritizing key member segments for conversation. This may include international travelers, high-value members, etc.
- Evaluate EMV-enabled prepaid card options as interim solutions. Evaluate which EMV-related features the card should have and when to replace them (i.e. 4-7 years vs. current average of 3).
- Evaluate reissuance timeframes for existing mag-stripe cards.
- Seek an update from key partners on EMV readiness.
Q: How will EMV impact interchange income?
A: In theory, it should be a positive but not significant impact to interchange income. Credit unions are most likely losing some foreign transactions where EMV-enabled merchants are denying transactions made by members traveling abroad that are using mag-stripe cards. Once EMV/Chip cards are issued to U.S. cardholders, there should be an increase in international transactions.
Q: Will the new cards be compatible with current ATMs and vendor equipment?
A: EMV will likely require hardware and software changes to ATMs. Visa has to date excluded counterfeit fraud at U.S. ATMs, but MasterCard has more specific requirements. Specifically, the owner of the ATM will be responsible for fraud resulting from EMV cards on non-EMV-compliant ATMs after October 1, 2013 for Maestro ATMs and all MasterCard cards after October 1, 2015. The Smartcard Alliance has outlined the following changes. To be compliant, ATMs must have:
- An EMV-capable chip card reader
- An EMV software kernel installed by the manufacturer, with update messaging infrastructure to handle EMV data fields
- Tested end-to-end (hardware and software) These resources can provide additional information and answer frequently asked questions about EMV and its impact on the credit union industry.