Although they're accepted in some U.S. airports and New York taxis, contactless chip cards have been more a subject of debate than an adopted product among U.S. banks and merchants. Although chip cards, which have a computer chip embedded in them to provide account information and encryption, are considered more secure than traditional magnetic stripe cards, they're also more expensive. The estimated cost of replacing all the current magnetic strips cards in the U.S. with chip cards ($12 billion, according to the Aite Group) exceeds the total cost of U.S. card fraud ($8.6 billion, same source).
But United Nations Federal Credit Union is forging ahead with a contactless chip card rollout this summer, for several good reasons that Merrill Halpern, card services manager, explained to Bank Systems & Technology in an interview today.
The New York City-based credit union ($3.1 billion in assets) serves United Nations diplomats, staff and their families, half of whom live in the U.S., the other half live in every other continent in the world. "We've had a number of complaints over the years from loyal members who said their magnetic-stripe-only cards were not accepted at the point of sale in other countries, especially in Europe," Halpern says. "Even if there's a way to accept them — often there's a workaround at the terminals — people don't like attention drawn to themselves. The more likely response was for them to say, I'll just use another card. We were losing that business and image in the face of our customer."
Halpern also believes the chip and PIN card is more secure. "You hear all the time about all the fraud that takes place, all the compromises, all the card skimming," he says. "What better product or device to give our members than something that will make their transactions more secure."
The card UNFCU will issue this summer, a chip card that works at contact and contactless terminals, is made by Gemalto. It uses the EMV (EuroPay MasterCard Visa) standard that is accepted in Europe and is spreading to other continents. The card also has a magnetic stripe that makes it compatible with existing U.S. merchant terminals.
Halpern thinks U.S. banks should be forging ahead with chip cards. "We believe this is an important product that deserves serious consideration in U.S.," Halpern says. "We're hoping that this will be the first crack in the wall, and that along with some major merchants we hear about deploying terminals to accept cards like this, this will begin a long-awaited trend. It's one of the few areas where the U.S. payments industry is behind." Halpern has heard that some large U.S. chain merchants, especially in gateway cities, are planning to replace their terminals with chip-compatible ones.
Canada, he notes, is going to full chip-and-PIN only cards by the end of 2011, and many Americans travel to Canada regularly. "They're already starting to see in Canada a reduction in fraud from banks implementing ahead of the deadline," Halpern says.
The credit union will start with chip credit cards (debit cards may follow later) and run a user test this summer. By the end of the summer, it plans to be mailing the new cards out to platinum card holders. Although Halpern acknowledges there was an initial investment to produce the new cards, "over time, with volume, the price will be manageable, and it will be offset by decreased fraud write-offs over time, which can be high because of our international exposure," he says.
First Data, UNFCU's back-office processor, has taken care of the changes needed for the bank to accept the new card transactions into its systems, with help from Gemalto, Halpern says. First Data already has similar projects under way in Canada.
"We want our card to remain top of wallet," Halpern says. "We know everybody carries more than one card and if there's an inconvenience at the point of sale outside the U.S., the tendency is to use another card so as no to be perceived as holding up the line. I was in the U.K. recently and found there were several extra steps required to accept a magnetic stripe card. In one place, I ordered coffee at a kiosk, handed over my magnetic stripe card, and the cashier said just take it and enjoy it, it's too much trouble for us to change our terminal over."