EMV 360

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Roadmap to EMV MCUL & Affiliates 2014 Executive Summit In Cooperation with CUES Presented by Michelle Thornton September 18, 2014

Sponsored by:

Agenda

Overview How EMV Works Industry Readiness

Evaluating EMV For Your Credit Union

Global Adoption • EMV initially adopted to combat fraud in areas where offline authorization was the norm • France, the first country to deploy EMV, experienced 80% decline in counterfeit fraud activity

2.4 billion cards issued

47% of all payment cards

36.9 million POS devices in circulation

87% of all POS devices

Source: www.emvco.com

U.S. Timeline • In 2011 Visa, MC, American Express, Discover announced liability shifts beginning October 2015 • Durbin requires two non-affiliated networks on debit • Just one problem though. EMV was never designed to do this. EMV was designed so that transactions only go to the network specific to that chip on that specific card, there is no room for choice. One chip, one network, using a single Application Identifier (AID). That is how EMV was designed.

• Industry waited while a solution was hammered out Source: www.smarrtcardalliance.com

Solution Early 2014

How EMV Works

What is EMV? What is a chip card? • The terms EMV and chip used interchangeably • A chip card has a magnetic stripe and a small microprocessor embedded into it • The chip contains an operating system and one or more applications • The microprocessor and contact plate are mounted on the front of the card

• The microchip is encrypted, which means that it is extremely difficult to copy or counterfeit

How does it work? •

•

Chip cards are miniature computers with an operating system and multiple interfaces and applications

In an EMV scenario, a cardholder inserts an EMV card into the reader The card and terminal enter into a dialog

Cardholder Verification Methods Online PIN, where the PIN is encrypted and verified online by the issuer (host)

Offline PIN, where the PIN is verified offline by the chip on the card

CVM Signature verification, where the cardholder signature is compared to the signature on the card

No CVM (typically for low value transactions)

Credit Solution—One AID

Visa

VSDC App

Visa Standard AID

Debit Solution—Two AIDs

Visa Visa US Common AID

VSDC App

Visa Standard AID

Network Choice & Portability • Common AID enables terminal to use BIN routing tables • Merchant or ATM acquirer chooses network

• Issuer can move between networks without reissuing cards

Merchant Readiness

Merchant Readiness

Terminals Not Quite Ready • • • •

Terminals being installed Can work for credit but debit common AID not ready Code required to choose the common AID Infrastructure working to catch up to solution

Relative Number of POS Terminals

*Edgar, Dunn & Company

ATMs Not Ready Either • Terminal issue with Common AID extends to ATMs • NCR and Windcor nearing readiness • Other manufacturers working on code • Without Common AID code complete, transactions follow standard EMV rules of sending to global networks or giving cardholder choice of AIDs

Liability Shift

October

st 1

Liability Shifts, Not Mandates April 2013

ATM: Maestro international transactions

October 2015

POS: counterfeit fraud liability shifts to least secure, Visa, MC, Amex, Discover

October 2016

ATM: All MasterCard brands

2017

2016

2015

2014

2013

October 2017

Issuer shifts fraud only if merchants don’t terminalize. Acquirer shifts fraud if issuers don’t issue EMV cards.

ATM: Visa Automated Fuel Dispensers

Fraud Savings • EMV will definitely reduce fraud losses—eventually • Merchant terminalization • Retention of mag stripe – EMV will reduce fraud from counterfeit cards – EMV does not impact card-notpresent fraud

• Card-not-present fraud expected to rise

Canadian Fraud Statistics (EMV began in 2009) Interac Association announced that Interac debit card fraud losses to financial institutions resulting from skimming declined again in 2011 "Our collective efforts and significant investments in the fight against debit card fraud, particularly the transition to chip technology, are producing tangible benefits," said Caroline Hubberstey, Head of External Affairs, Interac Association. Toronto 3/16/2012

Dollars Lost to Debit Card Fraud $160 $142 $140 $119

In Millions

$120

$107

$95

$100 $80

$105

$70

$70

$60 $40 $20 $0 2005

2006

2007

Interac is the PIN debit network in Canada

2008 Year

2009

2010

2011

CO-OP estimates that approximately 50% of fraud is due to counterfeit cards created from skimming.

Global Interoperability • International travelers are experiencing some issues with magnetic stripe cards • Industry estimates that “chip only” terminals less than 5% of terminals worldwide

99.9% chip terminal adoption rate in Europe

Source: www.emvco.com

What Does This Mean For Credit Unions?

Timing & Planning • EMV is expensive • Issuance Strategy – Chip & PIN or Chip & Signature

• ATM Strategy • Member Impact • Staff Impact • The common U.S. AID simplifies efforts for the industry, but commercialization will take time • Industry experts expect conversion to EMV to take 10 + years

Will tokenization & mobile leapfrog EMV? • EMV is not THE answer but AN answer • EMV not likely to be abandoned anytime soon

• Tokenization: great promise • Mobile: inevitable

CO-OP Readiness • • • •

Certified Visa and MasterCard, credit, debit and ATM In beta testing for Common AID (Visa and MasterCard) NCR Common AID expected end of year Leadership – Active participation in EMV industry groups, such as the DNA • CO-OP: board member and one of founding members

– EMV Resource Center: www.co-opfs.org/emv

Road Forward • Research EMV and determine timing for your credit union • 2015, 2016, 2017? • Contact CO-OP Strategic Relationship Manager when ready to move forward

More resources at www.co-opfs.org/emv Visit the CO-OP EMV Resource Center (www.co-opfs.org/emv) for up-to-date information          

White Papers Blogs Budgeting Tool Card Plan and Worksheet Tool Kit FAQs Glossary “ABCs of EMV” Ask the Expert Links to other resources Webinars – download the slides or listen to the recording from any of our series of EMV webinars.

Questions?

More resources available at the CO-OP EMV Resource Center: www.co-opfs.org/EMV