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Visa Inc’s plans to accelerate migration to EMV card technology in the United States and prepare the ground for NFC-based mobile payments will enable significant changes in the U.S. card payments market. Within Visa’s broad roadmap, banks have many options – some good and some less good - for the timing and method of migration. Based on its experience and understanding of EMV migration, gained over many successful migration projects for banks around the world, Aconite has published initial advice and guidance, outlined below, to U.S. banks and will be presenting EMV seminars developing these themes. Aconite’s aim is to help issuers to achieve cost-effective migration and maximize the benefits from EMV.
Merchants have an incentive to install contact and contactless chip and NFC-enabled terminals. From October 2012, merchants handling 75% of their Visa traffic thru such terminals will not need to validate their compliance with the PCI Data Security Standard. Issuers benefit from October 2015 when the fraud liability shift takes effect (when merchants without contact terminals will be liable for any fraud on contact chip cards that they accept) but Aconite says issuers can benefit from starting their EMV migration well before then. Some of the key reasons Aconite cites for this are:
- High risk of accelerating increases in fraud losses: with the rest of the world rapidly adopting EMV, fraudsters are increasingly targeting US magnetic stripe cards as the soft option. Just as Ireland suffered when fraud migrated from the U.K. after the U.K.’s adoption of EMV, the US is already experiencing rising card fraud as Canada and Mexico issue more EMV cards.
- Reduction of existing card fraud losses: as the number of EMV terminals in the U.S. rises, an issuer that replaces magnetic stripe cards with EMV cards will experience tangible reductions in fraud levels. (Issuers bear 57% of fraud for all transaction types according to the Federal Reserve Board’s 2010 Debit Interchange Fees report). Visa Inc’s Chief Enterprise Risk Officer, Ellen Richey, has emphasized the role that dynamic authentication with EMV data plays in fighting fraud. (Aconite’s experience in Dynamic Data Authentication caused it to be commissioned to develop and provide DDA courseware for a leading card scheme in Europe).
- Issuing EMV cards to cross-border travelers improves acceptance and customer service: magnetic stripe cards are now not accepted at many locations. JP Morgan Chase, Wells Fargo and US Bank have already taken this course and Citi has recently announced co-branded and corporate EMV cards. In its first year, the United Nations Federal Credit Union EMV card posted impressive performance statistics, including members’ revolving balances up 20% and purchases up 15%. The ongoing EMV migrations in Canada and Mexico will strengthen business case for an EMV traveler’s card even further.
- Migrating a niche segment of the overall card portfolio can provide valuable experience to de-risk migration of the much larger mass market element of the portfolio.
- Planning the move to EMV well ahead of the liability-shift allows an issuer time to identify the optimum approach for the bank. Leaving matters to the last minute has seen issuers in other countries adopt sub-optimal approaches in order to migrate close to liability shift dates. What seems the quickest and easiest route to migration can prove to be an evolutionary dead-end, which prevents the issuer from gaining the full benefit of its investment in EMV. The old saying that “failing to plan is planning to fail” was never truer than in relation to EMV migration.
- EMV cards offer opportunities to market added-value services and innovative products, such as display cards that can, for example, show account balances, loyalty point balances and security codes. New and updated applications can be added to cards in the field. It is important to consider such future requirements when planning migration in order to avoid going down a developmental dead-end street, which can be expensive to fix.
Aconite also points to the possible downside of EMV migration and how to avoid it. Fraud can migrate between categories – in particular from “cardholder present” to “cardholder not present” (CNP) transactions. Issuers need to look at shoring up their defenses against CNP fraud when they migrate to EMV. EMV has a role to play in securing CNP transactions, through MasterCard’s Advanced Authentication for Chip and Visa’s Dynamic Passcode Authentication programs.
Patrick Regester, Aconite’s SVP Sales & Marketing, said, “We will shortly be announcing details of our EMV seminars, for US card issuers. Our range of EMV software and consulting services, allied with global depth and breadth of experience with EMV projects, enables us to offer tailored solutions to each issuer. Our web site, www.aconite.net, offers much related information. We’re looking forward to further engaging with U.S. issuers following initiatives started at the Smart Card Alliance’s conference in Chicago earlier this year.”
Patrick Regester,
SVP Sales & Marketing
of Aconite
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