Next Generation Cards Enhance Fraud Protection And Member Convenience

A new payment technology embraces globalization to make international and domestic transactions safe and stress free.


Picture this: A member pulls into the airport after sitting in traffic for hours. They’re running late so they park at the airport, which will cost between $10 and $15 a day. They forget to take off their belt while passing through security, get a full body search, and watch while their carry-on is prodded because of a four oz. bottle of lotion. Finally, they escape the clutches of airport personnel and take off toward the gate, their carry-on bumping along behind them. They slip onto the plane just in time to sit in between a crying baby and a sneezing, coughing teenager.

When they land in France, they hustle off the plane, gasping for clean air, and head down the terminal to buy their train ticket. Jet lagged mind swimming with visions of a four star hotel and aching for a night of much-needed rest, they stick their credit card into the machine to pay the $10 fare.


They try again.


It’s a POS terminal that only accepts EMV chip card technology and declines the member’s magnetic stripe card. A breakdown ensues.

As a credit union, what can you do to avoid this happening to members?

In January 2012, more than two million North Americans traveled internationally to countries that have adopted EMV technology, according to a report by the Office of Travel and Tourism Industries.

Approximately 80 countries are currently in some stage of Europay-Mastcard-Visa (EMV) chip migration. As of 1Q 11, 1.2 billion chip cards have been issued globally and 18.7 million POS terminals currently accept EMV, according to EMVCo, the company that defines and manages these advanced standards.

EMV allows consumers to use microprocessor technology embedded in the card along with their signature or a PIN number for more dynamic authentication. EMV chips are also a critical stepping stone in many evolving contactless payments systems, including mobile wallets.

Unfortunately, the U.S. has been trailing other countries on EMV technology, says Merrill Halpern, assistant vice president of card services at United Nations Federal Credit Union ($3.6B, Long Island City, NY). “Most U.S. consumers have been in the dark on this,” he says.

United Nations was the first issuer of EMV in the U.S. and began rolling out its chip-and-pin cards to some membership segments at the end of 2010. Halpern says the move was a necessity for United Nations because of its large traveling membership base. In many countries, United Nation’s members with magnetic stripe cards were being declined at EMV-enabled POS terminals.

“We were relentless in issuing EMV because we didn’t want to give up on our international members,” Halpern says.

The typical cost of magnetic stripe cards is around 15 cents, whereas the average cost of chip-enabled cards is between $2 and $4, according to a white paper report by First Data.

EMV has not only granted United Nations members a stress-free international purchase experience, it has also
helped the credit union address fraud prevention in a more palpable way.

An estimated $8.6 billion per year is spent by the U.S. card payments industry because of card fraud, according to a 2010 Aite Group report. “Credit unions have to look at EMV in terms of fraud prevention,” Halpern says.

In all, members have given United Nations 100% positive feedback on the new technology. EMV is the credit union’s fastest growing card portfolio segment, requested among 17% of new accounts compared to 3-5% for magnetic stripe

In the next few years, United Nations wants to roll-out chip technology to every member

EMV conversion is a critical goal for U.S credit unions, following a card issuer mandate that all merchants have EMV equipped terminals by 2013.

State Employees Credit Union ($24B, Raleigh, NC) is ready for this mandate after rolling out EMV to some segments of its card portfolio at the beginning of 2011. The 1.8 million member credit union initially converted all 16,000 Cash Points Global Product cards — an alternative to traveler’s checks — to EMV and has since transferred roughly 975,000 traditional Visa check cards to the new technology.

“We needed to go ahead and get in the [EMV] game and plan for the future,” says Leanne Phelps, senior vice president of card and record services at SECU. “We want our members to use that plastic because it’s much cheaper than checks.”

Phelps says SECU decided to convert its portfolios to EMV to prevent U.S. acceptance issues in other countries and to position SECU as an industry leader for progressive action. So far the credit union hasn’t had any acceptance complaints locally or globally.

“Our members are pleased their credit union has been proactive in introducing a new product designed to counteract fraud and provide for international accessibility to their accounts,” Phelps says.

SECU does acknowledge further developments can be made against online fraud, even with EMV. “The chip card has to be present to prevent counterfeit activity,” she says. But the online fraud numbers for EMV are at approximately the same level as traditional card numbers.

“I think Visa and Mastercard have set the ball rolling,” Halpern says. “Financial institutions that don’t keep up will be held accountable, and with major merchants adopting the service, consumers are going to be requesting it.”

Phelps also thinks the U.S. will jump on board with EMV technology, “but the infrastructure will be strictly an online model since we already have a well-established infrastructure in place.”

Both institutions agree it is only a matter of time before mobile payments and digital wallets become the consumer’s primary payment method. But EMV is a logical first step to prepare for that digital future.

“Our members are not clamoring for a mobile payment option, but we want to be prepared with multiple options when the market is ready,” Phelps says.