It’s probably no surprise that the credit union in question is one with a highly mobile and international user base: the United Nations Federal Credit Union, whose membership is limited to employees of the UN, a limited set of affiliated organizations, and family members of existing members.
However, despite being rolled out by a niche provider, this is still a big step for the American credit card industry. It opens the door for what could potentially be a huge upgrade for American residents traveling internationally, especially to Europe.
Adding the chip-and-PIN option doesn’t remove the functionality of the magnetic stripe. It just adds a feature that wasn’t there before, much like the RFID-based “tap-and-go” chips that some large issuers have added to their cards in recent years.
For banks with large numbers of international transactions, the addition of the chip sounds like a winning proposition:
The chip and PIN system has lowered the incidence of card fraud at the point of sale in the countries where it has been implemented, but critics have pointed out it has led to an increase in Internet or other “card not present” fraud.
Merrill Halpern, the card services manager for UNFCU, explained that the credit union had been contemplating starting to issue the cards for a while, both to better serve its international membership and to limit the CU’s exposure to card fraud. Halpern would not share specific numbers to illustrate the credit union’s card fraud but noted that it was significantly higher than for other financial institutions, including banks.
Part of the reason for the higher than average fraud incidence is that other credit unions with primarily U.S.-based memberships can, for example, automatically decline card transactions from some overseas countries perceived to have a high risk of card fraud to protect themselves from losses. But with its 88,000 members spread across 205 countries, Halpern pointed out that option is less feasible for UNFCU. Further, its members had started to complain about the lack of the chip and PIN cards, particularly when traveling on U.N. or other business.
This doesn’t mean that the chip-and-PIN system will be in use at any American terminals yet. That’s a sizable infrastructure investment that seems unlikely to occur anytime soon.
And while the addition of Chip-and-PIN would speed in-person transactions for American banking customers abroad, and allow Americans to use automated gasoline pumps, ticket vending machines, and parking fee machines in Europe, the system still has its flaws. Security isn’t guaranteed (much as it isn’t with a swipe-and-sign setup), with some semi-comical results.
Still, I’m still hopeful that this credit union’s experience is positive, and that more banks and credit unions follow through as well. It would be a big boon to frequent international travelers.