European Import: Chip & PIN Cards Seen As Inevitable If Goal Is To Reduce Related Fraud

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NEW YORK — United Nations FCU made a big splash in the world of credit cards in 2010 when it became the first U.S. issuer of a globally compliant, microprocessor payment card.

That decision, UNFCU reports, has paid off with not only improved fraud protection, but increased card sales.

The card, a Europay MasterCard or Visa (EMV) standard-based Dynamic Data Authentication (DDA) contact and contactless dual interface card, also known as a chip and PIN card, is considered more secure because its microprocessor is much more difficult to spoof than the magnetic stripe found on most American credit and debit cards. For those who travel outside the U.S., it is increasingly more difficult to use a mag-stripe card at many locations, especially unattended payment kiosks.

Merrill Halpern, AVP of card services for UNFCU, told Credit Union Journal the primary motivation for issuing the EMV card was to enhance acceptance, but a very close second was for fraud prevention.

"The EMV offers a security blanket to our members because we don't want them to feel violated in the event of a card compromise," he said. "We want them to have as much trust as possible in the vehicles we provide for them and feel good about their relationship with us. Unlike a mag-stripe card, which can be used by someone else if it is lost, the EMV card requires a PIN.

"It is also very difficult to counterfeit a chip card," he added.

UNFCU rolled out the EMV credit cards in October 2010, and Halpern said it expects to begin to switch its debit cards to EMV cards this year.

"There will be greater usage opportunities outside the U.S., as well as greater security," he appraised. "We understand Wal-Mart will be rolling out terminals for chip and PIN cards this year, and, combined with our cards, we hope that is the start of a trend."

The use of EMV cards has been "very, very successful," Halpern reported. He said UNFCU cardholders are "thrilled" with it, as evidenced by the numbers.

"Their usage opportunities are largely in Europe and Canada, but we had our best quarter ever in credit card sales volume in Q4 2010. We believe when the card did not have chip and PIN it wasn't top of wallet, because if people cannot use the card everywhere they don't use it. With the EMV cards we are getting that business back."

Stopping Transaction Fraud

United Nations FCU fights fraud on several other fronts in addition to its new plastic cards. It uses The Members Group as a gateway to First Data Corp., and uses Falcon for protection of both its credit and debit cards. Halpern said Falcon allows the credit union to set up strategies that pertain to all different types of situations where cards can be used.

"This could be by country, by area, by size of transaction, or other factors," he explained. "We provide conditions and specify what we want to be done when Falcon gets the transaction, then Falcon can approve it or stop it."

When there is a rash of skimming incidents in a certain state, UNFCU can program a new strategy on Falcon that will put a limit on self-service transactions in that state, he said. Gas stations are an easy venue for using counterfeited plastic cards.

UNFCU is partnering with TMG on two new projects in 2011, Halpern continued. The first is two-way SMS text messages, which allows the credit union to verify a suspicious transaction. For example, if someone lives in the U.S. and there is a transaction in Russia, UNFCU can contact the member right away to verify rather than the member waiting to see it on their statement.

"This cuts down on losses," he said.

Another project is Fraud Predictor, which Halpern said compiles information on the transaction history of various merchants. If there is a particular store that has a high incidence of fraud, the past information can be combined with other factors to make a decision on a transaction. "It uses intelligence from past records of other transactions from other clients," he said.

'Can Never Rest'

UNFCU's home banking is protected by Passmark questions and personalized symbols.

"I think we are doing a very good job on security," Halpern said. "Of course, criminals are always coming up with new things, so we have to react quickly. We can never rest in the fraud prevention business. The Members Group has been a great partner for us, because our membership is exposed to U.S. fraud and fraud that happens in other countries."

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