Looking Ahead to Mobile, USAA Targets EMV Chips in 80% of Credit Cards by Fall

By October, 80% of the approximately 8 million credit cards issued by USAA Bank will bear an EMV chip, furthering the payment card industry’s efforts to migrate from magnetic-stripe cards.

Meanwhile, the bank, a unit of USAA, a diversified insurance and banking company based in San Antonio, Texas, is still evaluating its EMV options for the approximately 8.5 million debit cards on issue, Vikram Parekh, assistant vice president of product management, tells Digital Transactions News. “Debit adoption will be slightly behind credit cards,” Parekh says.

Part of the reason is the kerfuffle that developed two years ago over a common application identifier, a critical EMV software component necessary to accommodate the unique needs of the Durbin Amendment, which requires that merchants have multiple debit-routing options. The global EMV specification does not readily lend itself to meeting that requirement. “We are in the process of evaluating the debit options,” Parekh says.

USAA’s debit position is not unique. No more than 25% of U.S. debit cards are expected to have chips by October, says Mercator Advisory Group Inc.

USAA, which caters to military members and their families, says EMV and mobile payments are important for its nearly 11 million customers. “They are mobile. They get deployed. They are extremely busy,” Parekh says.

These characteristics may also lend mobile payments a special affinity for USAA’s customers. USAA was among the first issuers to offer its cards in Apple Inc.’s Apple Pay service. “We find our members are adopting all different mobile payments,” Parekh says. “Our overall philosophy is wherever our membership is going, we want to make sure they can use our cards and accounts. We will follow them.” Already, USAA members have made nearly 1 million Apple Pay transactions totaling more than $25 million in value.

To that end, USAA also intends to support Android Pay, the upcoming mobile payment service from Google Inc.

Offering access to mobile-payment services may take on greater importance following the Oct. 1 EMV liability shift. That’s when merchants will begin to be responsible for fraudulent point-of-sale transactions if they aren’t able to accept chip cards. It’s also when consumers have to adopt a new type of transaction behavior. Instead of swiping a credit or debit card, and quickly putting the card away, they’ll have to wait while the card rests inside the POS terminal during the authorization process.

“Many of the members may find it a little annoying,” Parekh says. That’s where mobile payments may find favor, especially if consumers perceive them as quicker than EMV transactions. “They may adopt mobile payments for convenience purposes.”

Widespread mobile-payments adoption, however, will take some time, Parekh says. “I do not see physical cards going away, at least in the near future,” he says. Yes, the number of smart phones in use is increasing, but consumers still are not comfortable relying only on mobile devices for payments. And not all merchants will either upgrade to EMV or activate the NFC readers if they have upgraded their POS terminals, Parekh says.

And, there is a generational issue to consider, he says. Some, like baby boomers, will take a while to adopt mobile payments completely, he says, while younger consumers may be more likely to.