What lays ahead in the ever-changing payments marketplace? Credit Union Journal asked some industry experts and here's what they said:
1. EMV Will Take Hold
Eric Porter, EVP, business development for CO-OP Financial Services, Rancho Cucamonga, Calif., said EMV is going to "take hold" in the marketplace in the second half.
"This increases the cost of card issuance, because of the chip, but ultimately it will drive down fraud expenses. CO-OP is on a committee to adopt EMV rules to make things happen."
To the untrained eye, EMV discussions "in front of the curtain" are very organized, according to Dan Kramer, SVP of marketing and merchant services for the SHAZAM Network in Des Moines.
However, behind the curtain is "a lot of chaos."
"We recommend everyone in the credit union world develop a strategy to communicate with their members on EMV," he said. "The experience of using an EMV card is very different from using a magnetic stripe card, meaning there needs to be consumer education."
2. Prepare For More Fraud
Brian Scott, VP of sales with The Members Group, Des Moines, Iowa, noted when Canada and Australia switched to EMV, the later adopters got saddled with a lot of fraud.
"Credit unions do not want to be the last institution to switch," Scott said. "In some circles EMV is seen as slowing down a move to tokenization and other technologies. But I see EMV as an insurance policy. Regardless of what fraud losses are now, credit unions should protect themselves in the future."
At the SHAZAM network, 80% of fraud happens in three categories: mail, telephone or Internet orders, international purchases, and amounts of more than $100, according to Kramer. If a transaction meets those criteria, SHAZAM scores it in its real-time engine.
"We can make a decision in milliseconds to authorize it or not in our switch," said Kramer.
3. Plan to Plan
Kramer's advice to CUs: create a plan to cover fraud, EMV and tokenization from start to finish. This means covering communication, the message, the products, tokenization and suspicious activity reporting.
"Financial institutions are used to managing change, but it will be a big difference for consumers," he said. "The opportunity is the credit union can present it as leading the discussion with members. When members want expertise on fraud or payments, they will look to their credit union, which is why the message has to be consistent.
"If credit unions do not educate people on changes, they will get upset and will go somewhere else to find financial services," he warned.
4. Decide When to Issue
Jon Sarvis, CEO of TMG Financial Services, a credit card agent-issuer and sister company to The Members Group, said the challenge for CUs in the next six months is to decide to wait or go now on EMV issuance.
There are a number of positives and negatives, he noted.
"We have done a lot of analysis, and so far we believe the losses EMV would save is small compared to the overall fraud in the credit card portfolio," he said. "Given the increased plastic and processing cost, to make a business case based solely on economic reasons is difficult."
Then again, Sarvis said he would not want to be the last or one of the last issuers not switching to EMV — because as chip cards gain traction the fraud will switch to the non-EMV shops.
"It is definitely a credit union by credit union decision," he assessed. "It comes down to fraud costs versus implementation costs. It is not a question of if a credit union should issue EMV, it is now versus later."
5. Monitor the Alternative Payments Market
Predicting the future of alternative payment methods is trickier. Sarvis noted there is "a lot of movement" in the marketplace, but it is a "very fragmented" market, with different platforms, applications and ways of using the technology.
"Consumers have not moved in one particular direction, other than near field communications. Credit unions should be actively exploring different technology and monitoring which technology consumers are interested in."
