EMV: The Race Is On! September 24, 2013

Leanne Phelps

Senior Vice President, Card Services

State Employees’ Credit Union

Bill Thomas

Vice President, Member Operations

United Nations Federal Credit Union

Agenda

• Why EMV?

• EMV: The Technology

• UNFCU Case Study: The Issuer Perspective

• SECU Case Study: The Issuer Perspective

Why EMV?

• Secure chip stores payment information

• Chip card authentication prevents

counterfeiting

• Adds cardholder verification methods

• Offers online or offline authorization

EMV by the Numbers

• Worldwide Adoption

– 1.5 million payment cards

– 20 million POS terminals

– 40% of cards and 70% of terminals are EMV

• U.S. Adoption – What it will mean financially

– 15 million point-of-sale devices = $6.75 billion

– 360,000 ATMs = $500 million

– 609.8 million credit cards & 520 million debit cards = $1.4

billion

– Cost of mag-stripe card = 15 cents vs. EMV card = $2 - $4

EMV by the Numbers

Canada’s experience:

•45 percent of terminals were upgraded for

EMV through conversion kits

•50 percent of terminals were replaced; and

•5 percent of terminals were retired

Source: ATM Marketplace, July 3,2013

EMV by the Numbers

If we use these same percentages in the U.S., retail

ATM EMV conversion will look like this:

•135,000 + ATMs will be upgraded via kits installed by

field technicians;

•150,000+ new ATMs will be purchased and installed;

•The 150,000 ATMs being replaced will be returned to

manufacturers as trade-ins; and

•15,000 + ATMs will be retired as uneconomical.

All by 2017, at the latest!

Key EMV dates from Canada’s

Experience

7© 2012 VeriFone Systems, Inc.

Fraud Migrates to U.S.

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41.1% of cards

76.7% of terminals

84.4% of cards

94.4% of terminals

20.6% of cards

75.9% of terminals

28.2% of cards

51.4% of terminals

14.5% of cards

68.1% of terminals

Fraud Reduction Stats:

UK Example

• Fraud on debit and credit cards fell by

more than 25% from 2008 to 2010

• Counterfeit card fraud —skimming and

cloning—fell by over half

• Fraud on lost and stolen cards is at their

lowest levels in 10 years

• Fraud migrates to CNP9

Source: The UK Card Association

Form Factors Options• Contact

– Chip is embedded in a card

– A contact card is inserted into a smart card reader

– The contact points on the chip make contact with

the card reader

• Contactless

– The chip may be embedded in cards, key fobs,

stickers, mobile phones, etc.

– A contactless chip requires close proximity to a

reader (“tap and go”)

– Both the chip and the reader have an antenna and they

use an RF (radio frequency) signal to communicate

The Value Of The Chip

Source: Smart Card Alliance - What are chip enabled payment cards?

EMV Authentication and Verification

Source: Smart Card Alliance - What are chip enabled payment cards?

Authorization Options

Source: Smart Card Alliance - What are chip enabled payment cards?

Cardholder Verification Options

Source: Smart Card Alliance - What are chip enabled payment cards?

Chip and PIN

Source: Smart Card Alliance - What are chip enabled payment cards?

US Issuers Options

Source: Smart Card Alliance - What are chip enabled payment cards?

Key EMV dates from Card Brands

17© 2012 VeriFone Systems, Inc.

“Liability Shift” will Drive

Adoption

• A non-compliant merchant is

liable for fraud that occurs on

any chip card used on a

magnetic swipe terminal.

• A non-compliant issuer is

liable for fraud that occurs on

any magnetic stripe card used

on a chip card-enabled

terminal.

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EMV Case Study

United Nations Federal Credit Union

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About UNFCU

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• Serves employees of the United Nations and their

family members world-wide

• 2 Branches, 4 Representative Offices

• $1.4 billion in assets

• 101,895 members

• 11 ATMs

-Figures as of 7/31/13

UNFCU Card Programs

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• Credit and Debit Processed by FDR through The

Members Group

• Visa Elite (EMV)- 9,100 cards issued

• Visa Azure (EMV)- 1,200+ cards issued

• Visa Gold (phasing out with Visa Azure)- 22,000

cards issued

• Visa Classic- 9,600 cards issued

• Mastercard Debit- 75,000 cards issued

-Figures as of 6/30/13

UNFCU Migration to Chip –

Why Then? (2010)

• International balances were falling

• Members experienced declines at off-line terminals

• Members reported frustration and uncertainty when

using cards abroad

• Increasing fraud

UNFCU’s Approach

• Started by looking for a partner- that was a major hurdle!

• Focused on a small yet lucrative portfolio for

replacement- Visa Platinum

• “Big bang” approach- after pilot program, replaced all

Platinum Cards (over 5,000) within a few weeks

• Members had sixty days to activate cards

• Had to accommodate chip and signature transactions

due to geographically diverse member base

UNFCU’s Approach

• Major Challenges

– Finding willing partners

– Visa certification

– Address mapping for international members

– Delivery in unstable or fraud-prone countries

– Member activation of cards

– Member and staff education

UNFCU’s Approach

• Major Successes

– Average Balances increased significantly (more than

4 x what we saw on Gold portfolio)

– Fraud was reduced in absolute terms even as

portfolio balance increased

UNFCU’s Chip rollout

Then- 11 months

Planning

Development

Training

Testing &Certification

Pilot Launch

Mass Reissue

UNFCU’s Chip rollout

Now- 4 months

Planning

Development

Training

Testing &Certification

Launch

UNFCU Visa Azure Launch

What’s Next at UNFCU?

• Work with FDR and Gemalto to migrate debit portfolio

• How to support Durbin Dual Routing Requirements –

Common App ID – Visa or MasterCard options

EMV Case Study

State Employees’ Credit Union

About State Employees’

Credit Union

• Non-profit financial cooperative serving state

employees, teachers and their family members in

North Carolina

• 1.8 million members

• 250 branch offices

• 1,100 ATMs

SECU Card Programs

• Debit Portfolio - Route through Visa DPS to SECU Host

– 50,000 Cash Points Global Cards

– 1.1 million Visa Check Cards

– $5 billion annual purchase volume

– 160 million transactions

• Credit Portfolio – Processed through First Data Resources

– 250,000 Visa credit cards

– $550 M Open credit lines

– 11 million transactions

SECU Migration to Chip – Why

2010?

• Problem-free acceptance for our members

• International operability

• Begin migration to dynamic data transaction

processing in a real time environment

• Counterfeit is our biggest challenge

• U.S. is a prime target and will only worsen as Canada

and Mexico implement EMV

• Fraudsters’ technology continues to be refined

SECU’s Approach• Learned the lingo - talked to vendors and industry experts and then

talked some more!

• Online versus offline is not what it used to be

• Phased approach

– Reissue all SECU debit cards as Chip-enabled

– Eliminate acceptance issues for our members internationally

– Credit to be reissued as chip

• Project timeline

– May 2010 – began vendor discussions

– December 2010 – employee pilots

– December – 2011 – completed mass reissue

SECU’s Chip and PIN rollout

• SECU utilizes Visa Chip Services

– Visa authenticates the cryptogram from the chip and passes

the results to SECU

• Program supports chip and online PIN or chip and signature

– When SECU card is presented at a chip-enabled terminal,

the card will be authenticated through the chip

– Cardholder can be authenticated with a signature or PIN

depending upon merchant capability

– Will not work at unattended terminals outside US if offline

PIN support is required

• Cards continue to have mag stripe for use at non-chip terminals

Let the Real Challenges

Begin!

• Chip transaction activity begins in North Carolina July

2011!

• Merchant Acceptance Issues

• Don’t assume anything!

• Allow ample testing windows

In Their Own Words: Member Feedback

• “This card was perfect, I have been to Ireland and other countries

before and always had trouble, not this time! My traveling colleagues

still had trouble with their magnetic stripe cards. Thank you! “

• “Had a surprisingly good experience. First time experience. We need to

use same technology here in the USA!”

• “It is reassuring to know that I have the latest technology in my debit

card and that it will work with ease at most international locations.

When one is thousands of miles from home, it’s important that his card

match the advanced procedures in use in foreign countries. I

congratulate SECU for being one of the first financial institutions in the

U.S. to provide the debit/CPG card. P.S. I have never used this card in

the U.S.”

• “This was very efficient, all retailers knew & were able to do

transactions. Would use again!”

What’s Next at SECU?

• Work with FDR and Oberthur to migrate credit portfolio

• ATM upgrades –install/enable chip readers

• Upgrade ATM application software

• Host changes for EMV support from our ATM network

• Visa DPS upgrades to support acquiring transaction

activity

• How to support Durbin Dual Routing Requirements –

Common App ID – Visa or MasterCard options

Project Team

• Visa

– Provided international expertise and project resources

– VisaNet changes

– Certification Testing

– Chip profile tool

• Visa DPS

– Provides SECU transaction switch services

– Project management for overall project

– ISO changes for additional data elements

Project Team (cont’d)

• Oberthur Technologies

– SECU debit card personalization services

– Experience in chip technology in international markets

– Provided plastics and chip production

• CV Systems

– Host vendor for transaction processing software

• SECU Project Team

– Business Users

– Host programmers

– Marketing

Member Education

• Advisory Boards

• Employee education

• Newsletter articles

• Insert with card mailings

• Updates to card carriers

Points to Remember

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EMV is a standard that dictates the interaction between a smart

(chip) “card” and a POS payment device

The “chip” stores encryption data that is used during the

transaction to prove the card is authentic; it prevents cloning

EMV chips can be either contact or contactless and are read &

write capable

The Card Brands have announced EMV incentives (carrots and

sticks) that encourage issuers, acquirers, and merchants to adopt

EMV

EMV Benefits All Parties

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BENEFITS

C A R D H O L D E R

• Peace of Mind (fraud reduction)

• Never lose sight of their card

• Global interoperability

• Fewer fraud-related chargebacks due to

stolen cards/skimming

• Increase in international customer

satisfaction

M E R C H A N T

I S S U E R• Fraud reduction

• Global interoperability

• Mobile payments facilitation

Your EMV Call to Action:

Don’t Wait!

• Read and research to keep up with trends

– http://www.smartcardalliance.org/

– http://www.emvco.com/

• Talk to your core processor: Are they ready to issue?

• Consider using “on behalf of” services from Visa and

MasterCard

• Network with others

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Thank You!

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