As of second-quarter 2012, 1.55 billion EMV-compliant cards were in use worldwide, according to EMVCo, a joint venture that manages, maintains, and enhances EMV specifications and is currently owned by American Express, JCB, MasterCard, and Visa.
EMV (Europay MasterCard Visa) chip-based card adoption has been swift in most nations (see table, p. 22), but the United States lags far behind. Only a handful of U.S. banks offer EMV-enabled credit cards, including Bank of America, JPMorgan Chase, Citibank, Fifth Third Bank, U.S. Bank, Wells Fargo, and Silicon Valley Bank.
Unlike magnetic-stripe cards that are susceptible to skimming, EMV cards, also called smartcards, include an embedded microprocessor chip that utilizes dynamic data, rather than the static data available in mag-stripe cards, to protect consumers against counterfeit fraud.
A “dual interface” card
U.S. Bancorp, with $354 billion in assets, is an early EMV adopter. It first issued its Travel Rewards Signature Visa EMV credit card in June 2011 to 20,000 consumer cardholders, says Julie Schmidt, vice-president, FlexPerks Visa Portfolio Management. FlexPerks is a dual-interface card that combines EMV-chip and mag-stripe technologies, so it can be used at chip-card readers, contactless payment terminals, or traditional mag-stripe readers. Schmidt spoke about the bank’s EMV experience during a session at ABA’s recent National Conference for Community Bankers, and in a follow-up interview.
U.S. Bank rolled out the FlexPerks Travel Rewards Business card for small businesses in June 2012. The bank’s corporate payments division also began issuing EMV-chip cards to corporate-card clients in March 2012.
U.S. Bank began developing the business case for EMV even before Visa and MasterCard announced details and deadlines for a liability shift between issuers and merchants, notes Schmidt. She adds that the decision to offer EMV cards boiled down to customer convenience. “We wanted a better customer experience and needed a payment solution that delivered on the brand promise ‘Anywhere Visa is accepted,’” says Schmidt.
But other factors played into the bank’s decision. Also fueling the move to EMV was concern that as other countries implemented the more secure EMV standards and had succeeded in reducing card fraud in widespread applications, fraudsters would begin focusing on the more vulnerable mag-stripe cards in the United States.
U.S. Bank also noted a drop in its foreign transaction-fee revenue as customers, declined at the point of sale for not having EMV cards during foreign travel, would instead pay by cash or local currency.
When customers were declined internationally, they didn’t blame the technology; they blamed the card, says Schmidt. “Customers ‘punish’ the card by putting it in a sock drawer and not using it,” she laughs.
These foreign travelers were customers U.S. Bank wanted to retain, since FlexPerks cardholders who travel abroad are far more engaged and spend more on their card, explains Schmidt. Steve Kenneally, vice-president in ABA’s Center for Regulatory Compliance, concurs, noting that those consumers who travel internationally tend to be more profitable customers. He says he’s seeing a trend toward banks offering EMV cards on an as-requested basis to travelers, rather than rolling them out to their entire customer bases.
In May 2009, U.S. Bank converted the world’s second-largest co-branded Visa card portfolio, WorldPerks Visa, to FlexPerks Visa. It was an overwhelming success, with 90% of customers activating their FlexPerks card after the new card was introduced. U.S. Bank then transitioned the FlexPerks card to EMV in 2011 by first identifying those customers who had used the co-branded card outside the United States most frequently and reissuing EMV cards to those cardholders.
To drive customer acceptance, U.S. Bank included consumer education information with the FlexPerks cards to explain the new card’s features. “We explained that ‘Your card now travels even better with improved acceptance in Canada and overseas,’ and how to use the card whenever they encounter a chip-card reader,” says Schmidt. U.S. Bank also included travel tips, FAQs, and a picture identifying how to locate the chip on the card.
One of the biggest decisions confronting banks moving to EMV is whether to provide EMV in a password-required environment or use a chip and PIN model. Schmidt explains that after consulting with a variety of payments experts, U.S. Bank determined that the best approach would be to select a technology based on chip and signature.
“Customers told us they did not want another PIN or password to remember; they had too many already,” recalls Schmidt. “With so many payments routing over the internet, we felt we could deploy a secure EMV solution without a PIN or password.”
The rollout hasn’t been without a few bumps, with some customers reporting problems using the cards at unattended transit stations. “Unattended kiosks are becoming less of an issue as merchants replace their equipment to accept chip and signature,” reports Schmidt. The cards will work without a signature, she says. “The key is the chip.”
U.S. Bank is issuing, in waves, the FlexPerks Reserve Visa Signature cards with EMV as cards expire. All new consumer or business accounts that book to FlexPerks Reserve or FlexPerks Travel Rewards accounts are issued EMV-chip cards. Schmidt expects all FlexPerks cardholders to be on the EMV platform by 2014.
U.S. Bank also honors customer requests for the EMV cards. “Any existing FlexPerks Travel Rewards card member who did not get an upgraded card and has a trip planned can call us, and we will send them a new card,” says Schmidt. Otherwise, the cards are upgraded when they expire.
Stephanie Ericksen, head of Authentication Product Integration, Visa Inc., and a co-panelist with Schmidt at the ABA conference session, notes that EMV cards are approximately twice as expensive for banks to issue as non-EMV cards. While uncomfortable sharing U.S. Banks’ costs of issuing EMV versus mag-stripe cards, Schmidt reports there are multiple benefits in offering chip cards that outweigh additional card-issuance costs.
First, U.S. Bank customers who travel outside the United States spend three times as much as cardholders who use the card only domestically. These travelers also conduct as many as three times the number of transactions per month and revolve at a higher rate.
Second, the bank is capturing more transactions. Schmidt says customers are using the card not just for big-dollar purchases but for meals at fast-food restaurants, groceries, transit, and gas, and thus the average transaction size is decreasing. “We used to lose these smaller-value transactions to cash or local currency,” she notes. “Now, we are capturing many more transactions.”
These cardholders are more engaged with the bank as well, which is evidenced by their propensity to redeem rewards at a higher rate, says Schmidt.
Another area where the bank has been “thrilled,” says Schmidt, is that fraud has decreased due to the EMV cards.
Are you ready for EMV?
Ericksen recommends that banks not yet wanting to jump into EMV explore, plan, and monitor industry happenings. “Learn about EMV technology, how it works, and how to best implement it,” she suggests. The card processors as well as the Smart Card Alliance (smartcardalliance.org) can provide information, including usage numbers.
The second piece of advice Ericksen gives banks is to plan and develop a roadmap that includes triggers for when and how they will support EMV. Lastly, she encourages bank issuers to monitor the pace and developments of U.S. migration to EMV, so they can fine-tune their plans and timing, as necessary.
“Those banks moving ahead with EMV initiatives must make a few key technology decisions largely around cardholder verification options, such as signature/PIN or no signature/PIN,” explains Ericksen. “The key is for issuers to utilize a real-time infrastructure for authorization and authentication.”
Another critical decision is to assess the impact of the liability shift that takes effect on Oct. 1, 2015 for point-of-sale transactions. After that time, if an EMV-enabled card is read as a mag-stripe card and the transaction is fraudulent, the card issuer can then charge the transaction back to the merchant under card-company rules.
ABA’s Kenneally says that banks need to weigh the potential costs versus the benefits of the liability shift. “If banks don’t upgrade to EMV and the merchants do,” he notes, “the liability for fraud will fall squarely on the bank.”