Eye on EMV: UNFCU Study, Aite Survey, Jack Henry Service

n

News released this week shows further positive signs for chip cards based on the Europay-MasterCard-Visa (EMV) standard in the United States. While barely a factor in electronic payments domestically as recently as two years ago, EMV has come to the fore as issuers seek ways to control fraud losses and as other advanced economies roll out the technology, leading many observers to predict more fraud tied to magnetic-stripe cards. EMV technology replaces mag stripes with chips that secure payment credentials.

n

The first U.S. financial institution to introduce EMV cards, United Nations Federal Credit Union, released the results of a study along with Gemalto, the vendor of its cards. The study comes one year after the credit union launched its chip-and-PIN credit cards. As a result of the study, the 88,000-member institution plans to introduce an EMV debit card for all checking-account holders and, in the first quarter of next year, launch a second credit card product based on EMV.

n

The institution showed a 20% jump in revolving balances over the study period, October 2010 to February 2011, as compared with the same period a year earlier. Other results included a 15% increase in total purchases, a 382% increase in credit lines booked, and a 153% increase in card applications.

n

As with many U.S. EMV announcements this year, including those of JPMorgan Chase & Co. and Wells Fargo & Co., the UNFCU deployment is intended to serve the interests of customers who frequently travel overseas and encounter trouble using mag-stripe cards in markets that have converted to EMV. More than 2.5 million EMV cards are expected to be issued to U.S. cardholders this year to meet this need, according to payments researcher Aite Group LLC.

n

Boston-based Aite released a report showing a marked increase in optimism among card-security professionals with regard to EMV. Some 19% of 76 executives surveyed agreed or strongly agreed with the proposition that EMV will migrate to the United States within just one to two years. In a smaller survey in 2009, no one agreed with that statement. The percentage agreeing or strongly agreeing with the statement that the technology would never come to the U.S. dropped to 17% from 36%. At the same time, 73% saw EMV having high to very high impact in reducing fraud, the highest rating given to any antifraud technology and up from 48% in 2009.

n

“Card-industry executives believe that EMV in the United States is no longer a matter of if, but of when,” said Julie Conroy McNelley, a senior Aite analyst and author of the report, in a statement. “The relevance of the magnetic stripe has disappeared.” The replacement of the mag strip is likely to be slow, however, as 55% agreed or strongly agreed that the migration of EMV would take seven or more years.

n

McNelley also said in the report that the Federal Reserve’s final rule interpreting the Durbin Amendment could give EMV a boost. The rule makes no distinction between signature and PIN debit, capping interchange on all types of debit at 21 cents plus 0.05% per transaction. With Fed research finding that average fraud losses per transaction on PIN debit are at one penny, half that on signature debit, issuers may have an incentive to push technology like chip-and-PIN to increase margins under the cap.

n

Aite surveyed the security executives, who came from both North and South America, in April at MasterCard Inc.’s annual Americas Global Risk Management conference.

n

In another EMV-related development, Jack Henry & Associates Inc. announced its JHA Payments Processing Solutions (PPS) division will offer EMV chip-and-signature cards to credit union clients. “There are only a few institutions in the nation currently issuing microchip cards, and we believe PPS is ahead of the curve and well-positioned to take advantage of the growing demand for this technology,” said John Postle, general manager of PPS, in a statement. The cards are branded by Visa Inc.

n

Jack Henry says its first pilot deployment is with Star One Credit Union in Sunnyvale, Calif.