EMV Is Looking Over Its Shoulder

Even as credit unions make the switch to EMV-enabled cards, newer payment technology is entering the market.


A big change is coming to payments technology in the United States, and that change is EMV. EuroPay, MasterCard, Visa (EMV) cards are embedded with a chip that encrypts payment information and makes card present transactions more secure. Although this is a major change for stateside financial institutions, EMV chip cards are nothing new in a global context.

Since the early 2000's EMV has been the preferred form of payment outside the United States. More than 80 countries around the world currently use chip technology, and the U.S. is finally joining that company. However, EMV is not the shiniest new tool in the shed. Although financial institutions are investing in EMV-equipped cards, they are also weighing new payment delivery options, such as mobile or contactless, as well as alternative security options like smartcards with changeable PINs or biometric authentication.

Don't Stop At The Card, Redesign Your Whole Wallet

CU Wallet is a startup founded on the belief that credit unions need to be active in the digital wallet space. The CUSO will likely launch its solution by 2015, hitting the market many months before the scheduled October liability shift that was required to get EMV on its feet. The credit union-centric mobile wallet will allow consumers to sync credit and debit cards with their smartphones, all but eliminating the need to carry a traditional wallet.

Credit unions can bring many transacting members to the party, and CU Wallet brings the power of the market. 

"CU Wallet is less a technology move than it is a market clout move, because it's really not that high-tech," says Bruno Sementilli, CEO of Quorum Fedral Credit Union ($779M, Purchase, NY), a partner of CU Wallet. "Credit unions can bring many transacting members to the party, and CU Wallet brings the power of the market."

Digital payment options already exist with services like PayPal and Google Wallet, but CU Wallet has the ability to introduce a massive amount of credit union members to a digital option. Attaching the mobile wallet to established financial institutions also allows for additional value when it comes to payments, electronic funds transfer, and other services available at credit union branches and online.

"People will go for what's easiest for them," Sementilli says. "Carrying around less of a wallet or no wallet at all because you are already carrying a mobile device is just another step along the way."

The upsides to a digital mobile wallet seem unlimited, including the possibility of payments, key fobs, and all kinds of technology rolled up into a singular device. However, mobile solutions are also poised to disrupt the steady flow of interchange income to which credit unions are accustomed.

"We have so much invested in interchange income and people ask why would you move to disrupt it," he says. "My answer is because you have no choice. This is happening. Either you get on board or you suffer because there's no stopping it."

Mobile payments are coming, but so is EMV, and Quorum's investment in the former is not holding it back from preparing for the latter. In fact, Quorum plans to convert to EMV on the credit card side of its portfolio by May of 2014.

"I don't think you can stop moving forward with EMV," Sementilli says. "Mobile wallets just won't turn over that quickly and cards are too well established."

The Post-EMV Payments Landscape

Whether in the form of a credit card, debit card, smartcard, or other device, contactless payment systems — which create a unique, one-time transaction verification code that fraudsters cannot duplicate — have a steady presence in the payments space. An embedded antenna inside the contactless card communicates with a merchant's point-of-sale system using radio frequency to make the transaction. The consumer simply holds the card an inch or two above the merchant's POS terminal and payment information is transmitted wirelessly. The eliminated need for physical contact combined with PIN-free transactions for purchases of less than $25 in the United States make the process quick and painless.

The use of contactless cards has been steadily growing overseas. As of October 2013, there were 36.3 million cards with contactless functionality and more than 164,000 contactless terminals in the United Kingdom, according to the UK Cards Association.

Card providers are also finding consumers spend more when using a contactless method, possibly attributable to the technology's simple user interface. According to a series of studies by MasterCard, the average consumer spent nearly 30% more within the first 12 months of adopting contactless capabilities.

The Alt-Payments Options

Just as there are many ways for criminals to create security issues, there are many ways for financial institutions to solve them. And several vendors across the country are going their own route in this regard.

For example, Pennsylvania-based Dynamics Inc.'s Hidden card features a changing security code and payment information, making it virtually theft-proof.

Here's how it works:

  • On its face, the card has five buttons as well as a digital display that partially obscures the card number.
  • To use the card, the cardholder enters a personal unlocking code that activates the magnetic stripe and displays the user's full card number. This allows cardholders to use the card at a traditional magnetic stripe terminal.
  • The card creates a unique code every time the cardholder turns it on, which makes it nearly impossible to clone. If the cardholder doesn't unlock the code, the card is useless.
  • After the cardholder uses the card, the display turns off and the card erases the magnetic stripe data.

This option has yet to earn widespread adoption, but PIN-changing technology is a creative option for institutions looking to solve those card not present fraud issues where EMV alone falls short.

Another example is the all-in-one biometric digital wallet solution from Nevada-based SmartMetric, Inc. This card has a self-powered, pencil-thin fingerprint reader that controls access to the card. Print matching and validation occurs in less than one second, which puts it on par with the quickness of other emerging payments options. Finally, credit unions are turning to what's already in their members' hands — a mobile device — in order to ramp up physical card security. For example an app from Texas-based Malauzai Software allows members to effectively turn their card off or on as needed, nearly eliminating the risk of unauthorized use.

EMV might be taking over the payment landscape in the United States today, but the buck will not stop with the chip. After EMV-enabled cards, there will be more, newer, better payment options coming down the pipeline. Here's to the next big thing.