DES MOINES, Iowa-It may finally be time to start working on plans to convert the card base from mag stripe to EMV.
EMV, also referred to as chip and PIN and chip and signature, is coming-and faster than many credit unions or card processors have predicted, payments experts indicate. Those experts say EMV could begin to take hold in the U.S. within in a year. EMV cards feature a micro-processing chip that stores cardholder data securely, helping reduce the number of fraudulent transactions resulting from counterfeit, lost, or stolen cards. The technology is widely accepted in Europe.
What's behind the chip-card technology push stateside are efforts by Visa and MasterCard to motivate merchants to install EMV-capable terminals, which will then drive card issuers to adopt EMV and its fraud-prevention benefits that have many crime rings now focused heavily on the U.S. mag stripe market .
"The pace of merchant adoption, from my perspective, is moving faster than I thought, driven by big-box merchants," said Jeff Russell, senior advisor for The Members Group, citing merchant incentives from Visa and MasterCard, and the fact that Walmart is ready to go with EMV-capable POS terminals but has yet to deploy the software.
Russell urged credit unions to review their card-reissue patterns, saying the reality is that within the next two to three years most credit unions will have to be fully implemented with EMV.
Jim Park, president of CU24, Tallahassee, Fla., recommended that credit unions now look to invest in EMV, as he believes the technology could begin taking hold in a year. "Credit unions need to prepare for the change to protect their card revenue streams." Park is concerned that CUs could lose cardholders to financial institutions that move soon to EMV, which he noted is not a quick process.
'A Lot of Interest'
Bob Hackney, president of the Clearwater, Fla.-based CSCU, would not be surprised if the shift to chip cards happens sooner than later. "I am seeing a lot of interest now in EMV."
Visa is requiring all processors to support chip transactions by April 1, 2013, and the network is providing merchants with an incentive to support chip transactions. By October 2012, any merchant that accepts 75% of its Visa transactions through a chip-enabled POS terminal will not have to validate compliance with the Payment Card Industry Data Security Standard, a costly effort each year on the part of merchants. Visa has also stated it will shift fraud liability to merchant acquirers by Oct. 1, 2015, if the merchant does not have a chip-card terminal.
"Visa and MasterCard are trying to prime the pump a bit," observed Russell. "MasterCard is doing it somewhat differently, saying to merchants it will exempt them from some of the penalties associated with data compromises. They say if you invest in these terminals that have a higher level of security, they will give you a little more relief in the event of a data breach."
Kenton Potterton, VP of product management for card payments at PSCU, likened the efforts of Visa and MasterCard to move merchants to EMV to what the two payment networks did five to six years ago when contactless first arrived. "Then you had Visa and MasterCard incenting both issuers and merchants to grow adoption of contactless."
Dual Approaches May Be Taken
But don't think mag stripe will go away as soon as EMV emerges. Sources agree that the initial entry into EMV will have cards equipped with a mag stripe as well. "Until such a time as EMV achieves critical mass in the U.S., issuers must consider leaving mag-stripes on all EMV plastic," stated Aris Jerahian, VP of client relations at The Members Group, in a white paper titled "Chip Card Debate: U.S. Weighs Benefits of PIN and Signature Formats."
That critical mass could well be reached more quickly if merchants, as well as financial institutions, begin promoting the security advantages and use of EMV cards, suggested Russell. "Someone will go to the market from an advertising perspective and say why their chip card makes their transactions more secure. That has the potential of moving user adoption."
Pressure, too, sources say, will come from international travelers whose mag-stripe cards are turned down at numerous locations overseas.
Mark Rennie Davis, senior payments consultant at MasterCard Advisors, New York, warned that EMV could take off fast when it gains momentum.
"It's the chicken-and-egg scenario. If terminals come on board, the issuers come on board, and vice versa," he stated in a webinar on EMV. "There has been a tendency in some countries for a standoff between issuers and merchants. Latin America is good example. Once this initial standoff is overcome, then greater momentum takes hold-a mutual understanding within the industry allows the investment to be made with greater enthusiasm and scale."
