Interview with Merrill Halpern, AVP Card Services, UNFCU
The United Nations Federal Credit Union (UNFCU) is familiar to most people working in the United Nations and also in the different UN agencies worldwide. Recently, UNFCU made the headlines in the United States because they were the first financial institution to introduce credit cards with a personal identification number (PIN) code and a chip. You may think that this is nothing to be proud of, because in Europe we have used this system for a long time. However, in the United States it is just starting to make a difference. The key person is Merrill Halpern, a well-known figure in financial circles. He simply loves working for UNFCU because it’s such a unique place to work. It’s like a mini-UN, meeting people from all over the world –– and making the international staff happy and satisfied through the services offered by UNFCU. We met Merrill Halpern in New York.
Q: UNFCU is the first financial institution in the United States to launch a credit card with a PIN code. Could you tell us why you decided to do this?
The chip and PIN card functionality is very widespread throughout the world –– except in the United States. The first recognition of a potential product gap, we needed to consider came from our members who told us: “I’m a credit union member. I like your services, but there is just one problem and that is that your credit card is not always accepted outside the United States, and particularly in Europe” –– where we have thousands of members.
In Europe, for security reasons they need to see a chip with a PIN code. In the United States it’s normal to present a card with a magnetic stripe (depending on the merchant) to see if the signature matches. In Europe and in other parts of the world in particular, that transaction goes online and the PIN entered by the card holder is verified against the PIN encrypted in the chip to make sure that it corresponds.
We had members who became frustrated with small transactions, which they could not pay with their magnetic stripe-only credit card. For example, we have heard a lot of stories about the French railway system –– particularly, paying your fare when you want to travel. People said: “We were travelling on the weekend and could not get out of the train station to a bank. The only terminal where you could purchase your rail-card was at one of these unattended machines where they required a chip and PIN code.” That’s how it started. We had already observed that, even though we have provided a great credit card with many special features, why were people not making more use of it? It is all about convenience.
Well, everybody carries lots of credit cards and they end up using the one that works. So, if there is one card that I cannot depend on, I’m going to use the one that comes from a local bank instead because it has the chip and PIN functionality.
By the same token, in the United States we are held back by the magnetic stripe authorization. The merchant has to check that the signature corresponds and identify the customer. We know that there is a lot of fraud going on worldwide and as an institution, like many financial services providers who operate globally, we are exposed to it. For this reason, we regularly inform our members on how to best protect their cards and make security a priority. We like other international banks therefore, experience fraud because our payment cards are used all over the world.
You have probably heard that thieves use “skimming”, a device to copy the number of a credit card. If there is skimming taking place in New York, for instance, basically we and other financial institutions suffer from it. As a result, we said to ourselves that if we were to implement a PIN card, not only could we increase acceptance from our members and encourage them to use our credit cards, but we would also be able to bolster members’ security and cut down on fraud, because more cards would be subject to this additional PIN authorization.
We have known for some time that we wanted to do this and we had approached many commercial companies over recent years. We were told, however: “It sounds great and we would love to work with the credit union for the United Nations, but you have far fewer card holders than mega international banks and your volume of transactions is far too low. Therefore, for these reasons we are not as compelled to work with you.” UNFCU kept going because we needed to find a solution.
After a long search we found Gemalto. They are a leader in payment card security and very big outside the United States. Moreover, they were also interested in getting a foot in the US market. Furthermore, because we are a nimble organization focused on turning ideas into reality whenever possible, they loved the idea of working with UNFCU. So that’s how it all started!
Q: How long did it take?
From the initial introductions to deployment, it took about ten months. What we did was to design the first card to be very up-market. United Nations diplomats are frequent travellers, so we included lots of important amenities, like an airline lounge pass, trip cancellation insurance and benefits to make it very attractive and practical for them. The impact and acceptance have been phenomenal. People at a lower financial level started to ask for an upgrade. Many people who are willing to pay the US$50 annual fee as the price of airport lounge passes alone are higher, but they do not qualify for this card as it requires US$75,000 annual income. Our plan is to issue another card with the chip and PIN that does not have that requirement sometime soon.
Q: Does it cost more to have the PIN card than the regular one?
The regular magnetic stripe card cost about 60 cents, the other one costs about US$4. It is not only manufacturing but it is personalization. The card has to go through a special process and as the chip is like a minicomputer, there has to be a process to burn the information.
Q: Do these cards carry a higher fee?
It has a US$50 annual fee, so for us it is the only card that has an annual fee. If you compare it with certain PIN cards in Europe, they have a fee between US$100 to US$150. As a comparison, we think it is great value: low annual percentage rates; free rewards; points towards travel; gift cards; trip cancellation insurance.
Because of our size, our credit card programme is not as profitable as American Express or the card portfolios of large issuing banks, but in exchange our members come to us with their savings deposits and for more profitable loans. It’s a give-and-take situation and it creates a lot of goodwill. We are here to serve our members.
Q: What is the incentive of doing all this?
I have been interviewed by a lot of people about the incentive of doing this and my response is always the same. We cater for people who have these very unique life styles that is part of their work. These are people who may fly out of a European capital and end up living in a tent in a field. Their card must work when it needs to work. They do not have the luxury of time to be able to stop and ask for help wherever they go.
Q: Do you feel any competition from UBS in Geneva, for instance?
We are not really trying to compete with UBS because we have a different kind of niche. But the chip and PIN card is definitely something that has received a lot of notice, and in general Europeans like it. It is certainly more prevalent in Canada, which adopted the EMV standard. Last year, the Criminal Intelligence Service in Canada reported that 2009 payment card fraud losses decreased by approximately CAN 12 Million primarily due to EMV, and this statistic was drawn ahead of the ongoing nation wide rollout. This halted the trend of increasing fraud losses in preceding years.
Wal-Mart has said that they believe in it so strongly that they have implemented the terminals that can accept these cards in all of their US stores. I hope that this move by a big-box retailer will motivate US banks to do more of this. Most people think that it’s coming over time and that it will be an evolving process, but the fraud numbers in the US have crept up for all banks. If this is something that can tackle fraud, then it is going to be significant. Whether people like Wal-Mart or not, they are the facts of life here. A lot of people shop there and their prices are very low. I think that if people go to Wal-Mart and they see a sign saying that you can use a card like this, they may say “what is this thing?” and go back to their bank and ask if they will offer it.
Q: So what does it feel like to be a forerunner in the US?
I was very surprised at the attention that we have received–– that was really good. We do not do this primarily for profit. We do it for service, so that felt particularly good. We are not entirely profit-driven. Our priority is to be a constant in our members’ lives by understanding their special needs and their families. Our chip and PIN card is one more example of UNFCU’s living its service mission.
Q: What is your next project?
A debit card, which we plan to upgrade with a chip in the future. Everybody will have the option to get one. A debit card carries a lower daily availability on it. In other words, you can use it for obtaining cash and for small purchases, but it is only valid up to US$500 per day. But if they want to carry out a big purchase, such as buying an airline ticket, then they need a true credit card.
Q: Apart from looking into these kinds of business, what else do you do?
We also have the regular magnetic stripe cards and fraud continues to be a main issue, to which we are making inroads. We are cutting down on fraud, mainly because we do not want members to be disadvantaged. We do not want them to find that their card has suddenly exceeded its limit because somebody got hold of their number and used is without their knowledge. We are very conscious of the fact that our members travel constantly and they need our service twenty-four hours a day, seven days a week. We have evolved towards that model. Our Card Services team offers 24/7 service.
Q: What happens to a person who has been a victim of card fraud?
If we detect it through our neural network, we reach out to them. We will try to get them on the telephone and say: “We see that most of your purchases have been in France and sometimes in Africa, and all of a sudden somebody is buying a computer in the Philippines with your card. Was this by any chance you?” If they say no, we will take all of the necessary steps so that their account is kept intact.
Q: Are you looking for a bank’s status in Europe?
No, we are operating to serve the best needs of our members. In other words, technically on paper we are a US chartered financial institution, but since the UN is established in New York, we serve this group of people worldwide. UNFCU will continue to explore all options in order to provide the best products and services for its members.
Q: Your bank does seem to be in a very good shape.
Fortunately, our board of directors and management team have made very wise decisions during the whole financial crisis to protect members’ assets. They werenot involved in subprime mortgages or any other exotic products –– unlike many other financial institutions — , so we came out of it very well.