U.S. Cards Move Toward EMVOne Bank Says It Wanted to Jump on the Chip & PIN Wagon Early
The shift toward chip and PIN or Europay, MasterCard, Visa card technology in the United States has already begun, says Pradeep Moudgal, head of global cards and merchant services for $19.2 billion Silicon Valley Bank.
"It's going to take a lot of push from financial institutions, from the merchant community, from the regulators, who work together to really help move the needle," Moudgal says.
Moudgal's advice to financial institutions: start now, by reaching out to vendors, the processing community and other card issuers to force the debate.
"It's going to require a lot of work within the merchant community as well, trying to sell the advantages of why we're doing this," Moudgal says in an interview with BankInfoSecurity.com's Tracy Kitten [transcript below].
The EMV chip and PIN standard, a commonly used payments card method in Europe and Asia, offers an alternative to magnetic-stripe technology, which remains the standard in the U.S. The EMV chip is considered far more secure than the mag-stripe, because it prevents card details from being physically skimmed at points of sale.
"It's going to be an expensive proposition," Moudgal says, but through this process, a much better client experience and more secure environment will emerge, he explains. "The biggest advantage of the chip card really at the end of the day is to reduce fraud."
In this interview, Moudgal discusses:
- Why more domestic adoption of EMV is on the horizon;
- The global demand for more secure and ubiquitous payments technology; and
- Steps U.S. banking institutions should take if they're interested in initiating a migration to chip & PIN.
Moudgal oversees product management, product development, operations and risk management for SVB's global commercial and private bankcard portfolios and merchant services. Moudgal has 30 years of experience in commercial and small-business banking, marketing, product development and management, specializing in treasury and cash management, international banking, deposit services, lending, cards and investment services. Before joining SVB, Moudgal was executive vice president at Lions Consulting Services, a vice president for U.S. Central Federal Credit Union, a director of corporate banking for Corillian Corp., a vice president for Provident Bank, a vice president for First Commerce Corp., and an assistant vice president for Bank One Corp.
SVB's EMV Program
TRACY KITTEN: Silicon Valley Bank, which has about $19.5 billion in assets, was the first U.S. bank to issue chip-enabled credit cards to business customers. Can you give us a little background about the program and tell us when the bank initiated this migration to chip?
PRADEEP MOUDGAL: We actually launched a chip-enabled EMV card to our business customers and also to our private bank customers. That migration began on June 1 of this year, and we began the development of the network in the summer of 2010 when we actually first started thinking about the process and reaching out to our vendors and suppliers and mapping out a strategy to basically be the first commercial bank to launch an EMV infrastructure in the United States. Now we have not completed it across the entire card portfolio. We focused specifically on our elite card clients.
KITTEN: Could you tell us what percentage or number of your business customers now have and use these chip-based credit cards?
MOUDGAL: The percentage, when you talk portfolio at this point, is fairly small given the fact that it is focused on C-level executives on the business side and the private bank clients. With that being said, we are signing up more and more clients on a monthly basis. We think that once we migrate our existing card portfolio, our business credit card portfolio, over to an EMV infrastructure (and the plans are to do that sometime next year) we'll reach a much higher percentage of our client base. But because the focus was very much on the affluent segment and the C-level executives with these companies, it's a targeted market if you will. The percentage of conversions at this point is fairly small.
KITTEN: Your chip program started out with business customers. Are there plans to expand the program and could debit cards for retail customers also be a part of the plan in the future?
MOUDGAL: Well obviously we're a commercial bank. The majority of what we do is focused on commercial banking. ... We do not have a retail banking business, and we don't plan to do so anytime in the future. Our focus right now is to get more sales in our business elite and current bank elite cards on the chip program and then migrating our business credit cards, debit cards and also our private bank credit cards onto an EMV program later on next year. ... We are not in the retail space at this point.
Advantages of EMV
KITTEN: Can you give us some background on the advantages that this move has offered for the bank, such as some idea about what the return on investment has been for you?
MOUDGAL: I guess the biggest advantage from [this] standpoint is that a lot of our clients travel overseas. In fact, a large percentage of them do business overseas so when they are out in Europe or Asia, or other EMV-enabled countries, we were hearing about the fact that they were having experiences that were not very pleasant at the merchant that they were conducting business with. We felt that because of the fact that we do business overseas, we have overseas locations, we needed to address this from that perspective. But initially, it is also a much more secure environment not just for our clients, obviously that's very important, but also for the bank. Security is paramount and the EMV chip program provides a much more secure environment for our clients to conduct their business and also from a merchant perspective as well. We look at this and especially in New York their needs are focused on enabling as many secure transactions as possible.
KITTEN: Another area that you noted that I thought was interesting when it comes to chip technology is the ability that these chip cards offer to your customers to integrate the program into their corporate accounting system. This basically allows them to analyze data and spending patterns. This is an area about chip that we don't really talk about quite often in the U.S. Can you give us some background on some of the advantages that relate to this integration?
MOUDGAL: Integration of data at our systems is something we do on our regular business credit card program as well. One of the unique things about credit cards in general is the richness of data. We have the ability to get level 3 data that's easily integrated to back-end systems. It's not necessarily a chip-specific benefit, it's really the benefit of having a robust commercial cloud program that allows you to then take that information and pass it back directly into our client's ERP systems and then that data could then be used much more effectively to negotiate with our suppliers. We are able to provide reporting that is fairly holistic, comprehensive and it gives our clients a much bigger advantage as they're sitting there and looking at spend data whether it happens to be traveling on a payments plan or a procurements plan and then to start negotiating with suppliers more efficiently. Information is not just about the payment. It's also about the data and the information and we're very excited about the possibility of migrating more and more of our clients into this data stream because the interest of the data really makes a huge difference to our clients.
KITTEN: Do these cards contain mag-stripes as well? Are these chip cards that also have mag-stripes so that customers can use them in the U.S.?
MOUDGAL: Absolutely. When we launched this program, obviously a lot of our clients come back home and when they come back home we're still in the mag-stripe environment. So the mag-stripe is still on the back of the card and they use it just like a regular mag-stripe credit card that they do on a normal basis. That will continue on for the perceivable future. We don't intend to change that, because obviously we want to see spending go on anywhere, in the United States as well.
KITTEN: Do you have concerns regarding the card security when it comes to having this mag-stripe technology being retained on the chip cards?
MOUDGAL: Yes. The biggest advantage of the chip card really at the end of the day is to reduce fraud. We also have operations overseas and if you look at what has happened in the U.K., the EMV program has been an enormous success. I'm pretty sure, as a merchant, the results are a significant mark in reductions of fraud - not just with infrastructure, but also counterfeit card fraud. And fraud losses, generally, have fallen significantly in the U.K. and also across Europe and parts of Asia that are now compliant. The reality is that a mag-stripe card can easily be skimmed. No program is fully secure, nothing is 100 percent secure, but the inability for the data to be skimmed as easily through an EMV program is a key advantage of an EMV chip and PIN situation. I think that at the end of the day, if you talk to different analysts and you talk to anybody that's out there, the concern is that with the U.S. still behind in terms of its technology, much of the fraud is going to get centralized with the U.S. That's a big concern.
KITTEN: Do you see chip technology gaining more acceptance in the U.S.?
MOUDGAL: Yes, and part of it is also the big merchant, the big retailers, who are already looking at this very carefully. I know Walmart has made a lot of moves to move in this direction. I believe so has Best Buy and other retailers. Once the big retailers start to do that, other merchants will follow. This is going to take a bit of time though, with the Visa announcement in terms of what they're going to be doing with their merchants and how they're sort of looking at EMV compliance by the year 2014 and 2015, and MasterCard coming out with announcements as well. I think that the debate and the shift has already begun, but it's going to take a lot of push from financial institutions, from the merchant community, from the regulators who sort of work together to really help move the needle. I do believe that the time has come where we are going to start to see that shift take place and it's all going to be for the good, not just from U.S.-based customers but also clients coming in from overseas who are using their cards. Everybody wants to be in a much more secure environment and I do think that this will help move us in that direction.
Advice to U.S. Institutions
KITTEN: Before we close, what advice can you offer other U.S. institutions who are considering a similar move?
MOUDGAL: I think that they should reach out to their network providers, their processors and talk to their clients. I think those who travel internationally quite a bit are probably running into experiences right now as we speak where their card is getting rejected or they are having experiences that are not so pleasant. I think that the rules are going to start to shift even further next year with a lot of the different mandates coming in country by country where U.S. clients of these financial institutions are going to face even more trouble as they are coming out here to spend on their cards. I would advise financial institutions to really start reaching out to their suppliers, to their vendors, to their processing community, to the brand itself who in this case would be Visa, MasterCard or other brands that could be issuing and force the debate.
It's also going to require a lot of work within the merchant community as well, trying to sell the advantages of why we're doing this and then it's going to be an expensive proposition but it's something that I think everybody should share in this process to help create a much better client experience and a more secure environment at the end of the day, and that's really the key to the success of this program. From our perspective, the sort of things that we want to do from an innovation standpoint will really help move the needle, not just for ourselves but also for our clients in bringing robust technology to the marketplace.