THOUGHT LEADERSHIP
BENEFITS OF AN IN-HOUSE
SMART CHIP LIFECYCLE
MANAGEMENT SOLUTION:
THE ADDED VALUE OF EMV
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THE ADDED VALUE OF EMV
To drive the implementation of EMV-based technology, card networks are offering incentives and implementing
liability shifts over the next few years to U.S. merchants, processors and acquirers. Card issuers must supply their
customers with new chip-enabled payment cards and offer training programs on the benefits and uses of their
new EMV cards.
The adoption of EMV in the U.S. is
probably the most extensive and
pervasive change in the U.S. cards
market in decades. One of the most
frequently cited business drivers of
EMV adoption is a reduction in overall
card fraud — particularly in counterfeit
and skimming, which can occur during
“card present” transactions with
magnetic stripe cards. However, the
U.S. is at its lowest fraud level of five
basis points, nearly half of the level
of early 2000 (Tower Group, 2012);
thus, reductions in fraud losses will
not produce for the U.S. the same
economic benefits realized in other
areas of the world that have adopted
EMV. In preparation for the migration
to EMV, Tower Group advises that card
issuers take the following actions:
•Do not anticipate reductions in
fraud from EMV before 2018-2020
•Determine how to recover costs
for more expensive cards
•Continue fraud analytics,
particularly neural networks
•Anticipate growth in lower-value/
high-volume transactions
•Train customers early about the
new environment
With reduction in fraud not expected
to offset the costs of adopting EMV in
the U.S., the value of moving to EMV
must be realized elsewhere — through
leveraging a much more flexible,
adaptable, dynamic and secure form
of technology: the chip itself.
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Thinking of the chip as just a “skimproof magnetic stripe” and not actively
managing it through the adoption of
an in-house smart chip management
system will limit issuers’ abilities to
exploit opportunities and control costs
in the long run. From its global experience of EMV deployments, ACI has
seen banks recover costs and increase
value of their EMV deployments in the
following ways:
•Niche segmentation of customer
base and long-term cost reduction
•Flexibility to create new competitive
card programs with a fast time
to market
•Expansion in the types of both
payment and non-payment products
that can be supported on a single
card through multi-application
issuance and lifecycle management
•Acceleration in the adoption of
mobile payment products and
programs, such as NFC
•Business agility to switch physical
card suppliers or use multiple
suppliers as required
•Ownership and control of the
cryptographic security keys
associated with cards
•Deployment of an integrated
solution with an online payments
processing engine to manage
parameters after the cards are
activated in the field
The remainder of this paper looks
at each of these areas of value in
more detail.
NICHE SEGMENTATION OF A
CUSTOMER BASE AND LONGTERM COST REDUCTION
With the new ability of marketing
programs to be rolled out faster than
ever before and the capability to mine
customer data, banks are expected to
target ever-narrower customer segments to drive customer loyalty. Prior
to EMV, financial institutions managed
approximately six profiles for each
customer. With the adoption of EMV,
institutions now manage more than 30
profiles for each customer due to the
unique capabilities of the technology
embedded on the chip. This increase
in marketing activity typically leads
to an increase in costs when working
exclusively with a third-party bureau.
However, owning a smart chip lifecycle
management solution ensures that
there is no expense incurred for every
customer profile change, enabling
marketers to perfect and hone their
programs without worrying about
bureau fees.
In an ever-changing world, it is
imperative to keep up with consumer
demands while controlling costs. The
business agility afforded by having
an in-house smart chip lifecycle
management solution enables issuers
to stay ahead of the market by defining
ever-smaller market niches and
controlling long-term costs.
FLEXIBILITY TO CREATE
NEW COMPETITIVE CARD
PROGRAMS WITH A FAST
TIME TO MARKET
EMV cards can provide new revenue
sources when they are managed by an
in-house chip management system.
New payment — and non-payment —
services can be launched and delivered
to the cards during personalization or
post-issuance. The new applications
can be stored alongside the core EMV
payment applications already resident
on the card. This approach, known as
multi-application management, enables
card issuers to enhance customer
segmentation, create rapid marketing
offers, provide targeted loyalty
programs and potentially offer mobilebased identity verification programs.
Card bureaus are typically dealt
multiple issuer requests and cannot
quickly address requests for changes
or addition of services. However, an
in-house system enables card issuers
to establish their own product launch
schedules and move at their own pace
— rather than waiting for third parties,
processors or card bureaus to push out
new functionality.
EXPANSION IN THE TYPES OF
PAYMENT AND NON-PAYMENT
PRODUCTS THAT CAN BE
SUPPORTED ON A SINGLE
CARD THROUGH MULTIAPPLICATION ISSUANCE AND
LIFECYCLE MANAGEMENT
Multi-application management,
essentially the ability to offer multiple
products on one chip-based card,
has long been touted as a progressive
outcome of EMV adoption. Financial
institutions around the world have not
taken advantage of this potential. It is
expected that the upcoming adoption
of EMV and the marketing prowess of
U.S. financial institutions will create an
environment where multi-application
cards will be exploited to their full
potential. An example of such a card
could be a combined offering of a
prepaid transportation and a DDA
account — a New York City-based
financial institution could offer a
closed-loop, prepaid travel application
that resides on the same card as its
debit account, driving customer loyalty
and increasing non-fee-based revenue.
The possibilities are only limited by the
imagination of the financial institution
due to the capabilities of the chip
technology.
OWNERSHIP AND CONTROL
OF THE CRYPTOGRAPHIC
SECURITY KEYS ASSOCIATED
WITH CARDS
In today’s payments world, securing
customer and card data is a top
priority for issuers. The EMV Card
Issuer and Application guidelines (May
2012) from EMVCo state that the card
issuer has significant responsibilities
with regard to securing the EMV card
ACCELERATION OF MOBILE
throughout its lifecycle. Owning the
PAYMENTS ADOPTION
production, storage and distribution
The adoption of mobile payments is set of cryptographic keys associated
with smart cards allows these
to increase. The potential integration
of NFC chips based on EMV will enable responsibilities to be met more easily
banks to accelerate this payment type, — particularly during the obsolescence
further driving up electronic payments phase of the card lifecycle.
and reducing small-value, high-volume Cryptographic keys become obsolete
and should be destroyed; an in-house
cash payments. This is perhaps one of
smart chip management system can
the main reasons for Visa’s push for
do this faster and more securely than a
EMV in the U.S. Banks that own their
third-party bureau.
own smart chip lifecycle management
solution can stay ahead of the market
and be fast adopters. The facilities
DEPLOYMENT OF AN
that are required to manage chip
INTEGRATED SOLUTION
cards are in many ways identical to
WITH FRONT-END PAYMENTS
the functionality required to manage
ENGINE FOR POST-ISSUANCE
mobile NFC payment tokens. Being
CHANGES
able to download a payment app to
The cost of chip cards has decreased
an NFC-enabled phone is a powerful
considerably over the last decade due
argument for retaining control over
to growing card production capacities
smart chip management.
and the decreasing prices of integrated circuit chips; however, an EMV
BUSINESS AGILITY TO
chip is estimated to cost $1.20-$1.60
SWITCH PHYSICAL CARD
to issue. A bureau typically passes this
SUPPLIERS
cost on to the issuing bank. AdditionDespite best efforts, business relation- ally, a fee is charged by the bureau
for every post-issuance activity. With
ships occasionally don’t turn out the
an in-house smart chip management
way they were planned. Managing
solution integrated with an in-house
smart cards in house will give finanonline payment processing engine,
cial institutions the business agility to
the post-issuance costs are removed.
switch card suppliers or use multiple
Using the post-issuance functionalsuppliers as different business needs
require. Being independent of any one ity provided by a front-end payments
engine integrated with in-house issucard vendor will also enable financial
ance systems, the chip on the card can
institutions to improve their combe programmed to perform multiple
petitive position in negotiating pricing
from four or five vendors and not be at business functions, and the applications providing the functions can be
the behest of one card processor.
updated at POS or ATM terminals as
needed by the card issuer.
3
OTHER THOUGHT
LEADERSHIP TOPICS
DISCUSSED BY ACI
REAL-TIME, ANY-TO-ANY
PAYMENTS: IMAGINATION
REALIZED, COMMERCE EVOLVED
OVUM DECISION MATRIX:
SELECTING AN ELECTRONIC
PAYMENT SWITCH PLATFORM
WHAT A PROFIT-GENERATING
RETAIL PAYMENTS ENGINE LOOKS
LIKE
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4
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ABOUT ACI WORLDWIDE
ACI Worldwide, the Universal
Payments company, powers
electronic payments and banking
for more than 5,000 financial
institutions, retailers, billers and
processors around the world. ACI
software processes $13 trillion in
payments and securities transactions
for more than 250 of the leading
global retailers, and 21 of the
world’s 25 largest banks. Universal
Payments —  — is ACI’s strategy
to deliver the industry’s broadest,
most unified end-to-end enterprise
payment solutions. Through our
comprehensive suite of software
products and hosted services, we
deliver solutions for payments
processing; card and merchant
management; online banking;
mobile, branch and voice banking;
fraud detection; trade finance; and
electronic bill presentment and
payment. To learn more about ACI,
please visit www.aciworldwide.com.
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© Copyright ACI Worldwide, Inc. 2014
ACI, ACI Payment Systems, the ACI logo, ACI Universal Payments, UP, the UP logo and all ACI product names are
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