Making The Switch To A Chip-Based Card

As more countries adopt chip technology in lieu of magnetic stripes, one U.S. credit union takes the plunge and changes its card technology.

 
 

Here’s an inconvenient truth about global commerce: Although 99% of U.S. merchants only accept the standard magnetic stripe credit card, it can’t be used in many foreign cities where shopkeepers have long since switched to EMV chip technology. The chip card, though, is starting to gain popularity in the United States and eventually will be accepted just as frequently stateside as it is abroad.

Chip cards have been the standard overseas since 2002, when EuroPay, MasterCard, and Visa collaborated to create EMV. It is now the preferred technology for payment, if not the only option, in Europe, Asia, Canada, Mexico, and Brazil. More than 80 countries around the world use the chip, yet less than 1% of cards issued in the United States have one, according to an article by Cathleen McCarthy for CreditCards.com.

Frequent travelers want the chip, which is why State Department Federal Credit Union ($1.5B; Alexandria, VA) is among the few U.S. financial institutions to offer it. Last year, the credit union rolled out new credit cards equipped with both a standard magnetic stripe and an EMV chip that can be used domestically or abroad.

"A large portion of our membership lives overseas and has been asking about the card for a while," says, Tim Comeau, manager of card services at State Department Federal. “The chip technology is definitely nothing new to them.”

The Coming Mandate For Chip-Based Technology

Unlike magnetic stripe cards, which are swiped, chip cards are inserted into payment terminals. The cardholder’s personal identifying information is encrypted on the embedded microchip, which has an additional safety feature. A magnetic stripe offers the same data for every purchase, but the chip encrypts unique data for each transaction, making the card harder to clone or use fraudulently.

According to Comeau, 99% of merchants in the United States don’t have payment terminals that read EMV chips, and American ATMs aren’t equipped to handle the technology either. But that will change in the coming years because of a Visa mandate that U.S. merchants offer payment terminals that read the chip or risk assuming responsibility for fraudulent charges. The mandate is likely to take effect in October 2015.

The mandate is good news for card issuers such as credit unions and banks, which are currently liable for fraudulent transactions at the point of sale. After the mandate, however, merchants who haven’t adopted the new technology will be on the hook for fraudulent purchases made with a card containing the chip and magnetic stripe.

“When it becomes mandatory for merchants to have the chip technology, that liability [for fraud] shifts from the issuer to the merchant,” Comeau says.

Introducing Members To EMV

The chip and magnetic stripe card is now the only one State Department Federal offers, but the credit union prepared carefully for the switch. For instance, State Department Federal had its CEO and a board member take the card for a test drive while traveling overseas. Then it launched a full-scale media blitz to alert members to the coming changes.

That aggressive marketing campaign included digital and radio ads, ads in area transit, and on the credit union’s own website. It explains the chip-based technology and offers an FAQ section to address any lingering concerns.

“It is still a struggle,” says Carrie Shaffer, marketing manager at State Department Federal. “You say chip and pin, but that may not resonate.”

Given the international nature of the U.S. Department of State’s work, the credit union has the perfect membership for the chip card. With travel inherent to most State Department jobs, many credit union members are already familiar with EMV cards, which, Shaffer says, has made her task a little easier.

But not every member is a globetrotting diplomat.

“There are people out there who don’t know they like it, need it, or appreciate it until they like it, need it, or appreciate it,” Shaffer says, speaking about members who are unfamiliar with EMV cards. “I think we do struggle explaining it to people domestically. It’s not widely known.”

As many credit unions struggle to adopt new banking platforms, State Department Federal’s plunge into chip-based card technology serves as an inspiration.

“When we see an opportunity to be somewhat of a pioneer, we need to take it,” Shaffer says. “And this was a case where we were able to be on the forefront of something and at the same time answer a need of our members specifically.”

 

 

 

Nov. 11, 2013


Comments

 
 
 
  • There is no Visa mandate for U.S. merchants to have chip enabled devices at this time; instead there is a liability shift effective October 2015 which states that the party that is the cause of a chip transaction not occurring (merchant or issuer) will be held financially liable for any resulting counterfeit fraud losses. There's a instinct difference in meaning between a mandate and a liability shift.
    KCrane
     
     
     
  • I have a SDFCU Chip Card and while it worked fine in Europe, I have had my transactions declined here in the US when PSCU's falcon rules kick in. For such a high tech card, its too bad that I have to call the CU and report my location or face having my transaction declined. Such methods don't seem well suited to a "membership that's on the move". I would also note that I have "big bank" credit cards that are never declined based on my location on the map.
    Anonymous