The adoption of two major and closely related payment technologies, near field communication and EMV (Europay, MasterCard, Visa) is gaining momentum among U.S.-based card issuers and merchants. While there is some debate about the immediate financial benefits of these technologies, there is no debating that they are rapidly changing the entire payments landscape and have the potential to significantly reduce fraud.
While the expansion of NFC is being driven by market demand for contactless and mobile payments, EMV is a security-driven mandate that has already been adopted in much of Europe, Asia, Mexico, the Middle East and Canada. Together, these technologies and their associated implications to both merchants and financial institutions have created widespread uncertainty.
The Case for EMV Migration
In 1994, Europay, MasterCard and Visa jointly developed an integrated card specification that would ensure the interoperability of smart card-based payments. By 2011, EMV had become the global standard for such payments and is now being embraced by all the major networks.
The U.S. payments industry, however, continues to rely on magstripe cards, which makes the nationís payments infrastructure an increasingly attractive target for counterfeiters. The proliferation of cheap magstripe readers, combined with easily available card production equipment and Internet-sourced card data have rendered the magstripe inferior in the prevention of counterfeit card fraud. And as if by osmosis, counterfeit fraud has steadily shifted from the more challenging fraud environments where EMV has been broadly adopted to the softer counterfeit fraud targets found in the United States. As a result, EMV is a necessary and unavoidable improvement to the American payments infrastructure.
Here are the key steps card-issuing financial institutions should take to prepare for EMV and mobile payments.
1. Evaluate your cardholder needs.
Do all customers need an EMV-enabled card right away? Probably not. However, cardholders who travel internationally should be among the first of your customers to carry your EMV-capable card. Forbes Magazine estimates that one-third of Americans have passports. This might be a good starting point to estimate the portion of your cardholders who could benefit immediately from EMV-enabled cards.
2. Understand your partnerís capabilities.
Begin the conversation with processors, networks and card producers to align your planning with their timelines and to understand any related interdependencies. These discussions can also help identify any incremental costs that you may incur as a result of this conversion. Also, these partners can share insights gained from their involvement with their other customers and partners that you can leverage to make for a smoother and less-disruptive conversion.
3. Evaluate options for cardholder verification methods.
Cardholder verification authenticates the cardholder and helps protect against lost and stolen card fraud. Cardholder verification ensures that the user of the card is the person to whom the card was issued. EMV provides even more CVM, including offline PIN, online PIN, signature or no verification; and every EMV card contains a list of CVM that it supports and when they need to be applied. You as the issuer can prioritize these methods based on your assessment of the risks of the transaction type (e.g., use online PIN if the transaction is an ATM cash withdrawal, otherwise use signature).
While the United States processes payments in an online all-the-time manner, making offline authentication unnecessary, the same cannot be said for the rest of the world. Therefore, it is important to consider offering offline PIN-capable cards to your international travelers. This decision can represent the best possible payment experience for this relatively small group of customers.
4. Enable contactless capabilities.
Visa and MasterCard are encouraging merchants to upgrade terminals to accept contactless card and NFC smartphone transactions, so the number of merchants accepting contactless transactions is growing. As a result, you will likely want to have contactless-enabled cards available for your cardholders.
5. Prepare your ATM fleet.
Assess your ATM fleetís overall requirements. Your ATMs will need a new EMV-capable chip card reader, EMV software installed by the manufacturer with update messaging capabilities to handle EMV data fields, and the entire network will need to be end-to-end tested. It might be helpful to evaluate these needs against your current ATM replacement plans to enable a more cost-efficient transition.
6. Develop and deliver employee and customer education.
EMV conversion is going to impact all aspects of the payments chain, including call center and branch staff. Considering this is the first line of customer contact, you will want to begin to educate these important resources on your EMV conversion strategy: what EMV is, how it works and the types of fraud it can prevent. At the same time, you will want to educate your customers about the new EMV cards, what to expect when using the cards and how to use them.
EMV has successfully addressed counterfeit card fraud at the point of sale and at the ATM throughout much of the developed world, and will no doubt have the same impact here. Concurrently, NFC-enabled smartphones will also begin to proliferate. So, in addition to the expected fraud reduction benefits, EMV will provide an important improvement in NFC payment security. A thoughtful approach to this implementation will smooth the conversion process for issuers and their customers.
Patty Walters is senior vice president for corporate EMV strategy at Vantiv.
Copyright (c) August 2013 by BankNews Media