The sad story of the U.S. traveler who can't swipe a credit card at a TGV kiosk in France, or the isolated American mag stripe holdout bank wearing a bulls eye for international fraudsters, are becoming less frequent. These stories are being replaced by real action on EMV -- the standard for making chip cards and merchant terminals work together that's named after Europay, MasterCard and Visa -- by big banks and small credit unions, and the pressure will mount in the coming year on institutions to position their IT strategy for the coming adoption of EMV in the U.S. "It's a matter of time before the U.S. moves to EMV. The rest of the world is migrating to EMV," says Zilvinas Bareisis, a senior analyst at Celent. "And it's happening over the border in Canada."
American-based banks, including Wells Fargo and JPMorgan Chase, are adopting EMV card payments standards, making an initial foray for international travelers, but also through their influence serving as a watershed for domestic momentum that will necessitate major bank IT projects industrywide to accommodate EMV card processing and authentication.
"Our customers and Americans in general were finding more issues when traveling," says David Porter, a general manager at JPMorgan Chase, which has started distributing EMV-compliant cards for Americans traveling overseas. The institution introduced EMV on JPMorgan-branded cards this month and will deploy to other Chase-branded cards later in the year.
A Steep Learning Curve
But for U.S. card issuers, the use case for EMV is much easier than the tech strategy that enables execution.
Even the early stage deployments at Chase and Wells, and smaller institutions like the United Nations Federal Credit Union and the State Employees Credit Union in North Carolina-all of which are initially focused only on U.S. travelers overseas-still required major overhauls of card processing, customer service, data management and card manufacturing.
At JPMorgan Chase, for example, the move to EMV for travelers necessitated an upgrade to accommodate both traditional mag stripe and EMV chip and PIN enabled payments, a project JPMorgan Chase executed internally on its proprietary card processing system. "[The project] ensured that our equipment could personalize a chip, so that the bank knows that the right chip is connected to the right person," Porter says.
Wells Fargo and United Nations Federal Credit Union also faced tough tech overhauls for the traveler EMV migration.
Wells Fargo is rolling out chip and PIN cards to about 15,000 cardholders in a deployment that includes a partnership with First Data, the bank's processor; Giesecke & Devrient, the provider of the EMV technology; and FDR, the provider of the card plastic. The card user pool, a small portion of the bank's card user base, was chosen and invited to participate in the pilot based on a propensity to travel as gleaned from transaction histories. While the EMV rollout is a test, one of the goals is internal education in addition to gauging consumer use and adoption. The bank hopes to get its service, IT and other support staff up to speed on the intricacies of EMV card payment processing to position the institution for potential deeper deployment of EMV cards, though Wells would not comment on its specific plans for domestic EMV payments.
"For processors in the U.S., it's a relatively new thing to get the back-end technology up to speed to service these cards," says Eric Schindewolf, vp of product development for Wells Fargo. "And we want to ensure that staff that are serving [EMV] cardholders are informed about the differences in processing."
Schindewolf says the differences include more information embedded on the cards that needs to be processed and authenticated, including cryptograms, key management, analysis of transactions and integration of security elements with the institution's fraud management system. "The mag stripe generally is only one piece of information," Schindewolf says. "With EMV you have to update all of your card processing to handle the new data."
Merrill Halpern, avp of card services for the United Nations Federal Credit Union, says the growth of point of sale technology at self-serve kiosks at train stations and airports overseas, which increasingly accept only chip and PIN cards, is leaving mag stripe cards obsolete for travel. "What's used in most parts of the world is encoded algorithms in the card that can only be unlocked by a reader at the point of sale," Halpern says, adding that it's only a matter of time before that level of POS technology comes to the U.S. "The reality is that just about all of the world is chip and PIN except for the U.S."
The program has been successful for the credit union, which reports new account applications are up 158 percent, new credit line requests are up 382 percent, revolving balances are up 20 percent and purchases are up 18 percent over the past year. The success and inevitability of chip and PIN aside, Halpern says the migration isn't easy, and includes changes in card issuance and configuration to manage a customer base that's now a mix of chip and PIN, and traditional mag stripe. "It was a real learning curve for us as a U.S. dollar-based institution."
Halpern says when the credit union deployed EMV cards for overseas use, it had to configure the cards to include daily and transaction limits in dollar amounts for both security and personal financial purposes, because the transactions are being approved under local standards and jurisdiction.
Once transactions are approved, the CU's processor, First Data, runs mag stripe and EMV processing on separate "rails" within the tech firm's processing center, and the summary of daily account activity is contained in a single online report viewable by the credit union and consumers. "Everything is all together, so EMV is not really another 'type' of transaction," Halpern says. "It's the authentication that's different."
The credit union, which selected about 7,000 frequent travelers as part of its deployment, entered into a partnership with First Data and Visa, whose software - called "personalization assistant"- enables the issuer to implement a program to determine the personalization settings for cards prior to issuance to ensure that all appropriate data is included on the card.
James Van Dyke, CEO of Javelin Research, says the introduction of more international card transactions places a premium on personalization and card controls, since the "red flagging" of suspicious transactions becomes more complex. "Suddenly Wells and Chase are adding a whole bunch of different transactions," he says, adding that introduces an influx of new and different transactions to a cardholders' history, which can "look like" fraud. "What banks need to do now is to provide cardholders with transaction alerts in real time to verify transactions, and allow cardholders to set parameters on use."
Bank of Montreal 90% EMV Ready
A domestic point-of-sale migration to EMV is increasingly being viewed as inevitable, which would make the IT picture even more complicated.
"There's a lot of infrastructure that has to be put into place to make EMV happen," says Eric Hart, director of product management for BMO.
BMO is migrating to EMV payments in Canada and has made an investment in its proprietary card platform to accept and process EMV payments in that country. The bank's migration is about 90 percent complete, and most of the major Canadian banks are about 80 percent complete. "It's no small feat, there's a lot of partners at play: MasterCard, Visa, card suppliers, and merchants," Hart says.
In Canada, BMO is part of a cooperative effort among Canadian banks that's developing guidance for the development of an EMV ecosystem in Canada. There's no substantial similar cooperative in the U.S. yet, though Hart says coordination among payments stakeholders in some form is vital. "The market needs to develop in a balanced form, you can't have chip cards without terminals. The market has to be organized or it won't work."
BMO's card manufacturer is Giesecke & Devrient, which was already manufacturing EMV cards in Europe and is upgrading its Canadian operation. Payment terminal manufacturers and processors such as Moneris, Payment Tech and First Data also performed upgrades to their core systems to accept EMV cards in Canada, providing regional processing centers that should make U.S. migration easier from a processing perspectives. Other major EMV card manufacturers include Oberthur, Gemalto, Travelex, CPI and others. Gemalto and Travelex have introduced EMV cards designed specifically for U.S. travelers.
