Think of the Oct. 1 liability shift date for EMV cards as a beginning—not an ending.
That is the message from Bob Legters, chief product officer of North American retail payments for FIS. He told Credit Union Journal many people have a mistaken impression about the shift due to the inappropriate use of the word "deadline."
"We are really at the birth point of EMV. It is becoming real," Legters said. "It is not a matter of taking one step and being done. We do not yet know the future. There will be a lot of changes to functionality going forward. The industry has spent billions of dollars to change terminals and swap out cards.
"It has been a long run to get to the start of the race, but now it will be fun," he added.
Though not everyone in the financial services industry would characterize the changeover from mag stripe technology to chip-embedded cards as "fun," there does not seem to be much in the way of panic going on.
Michelle Thornton, director of product development for CO-OP Financial Services, Rancho Cucamonga, Calif., said one of the biggest issues for credit unions - once they distribute chip cards - will be education.
"There are not a lot of differences in using the new cards, but there are some key changes," Thornton said. "People have to put the card in and leave it in, and then remember to take the card with them at the end of the transaction. At a store there will be a cashier who can remind people, but what about at ATMs or kiosks? People are not used to leaving their cards in most machines."
Thornton said one "interesting" aspect of the changeover will take place in American restaurants. "In other countries the waiter brings a terminal to the table."
Once consumers go through the process of using their new chip cards a few times "it will be fine," Thornton said, while quickly adding, "but credit unions will have to pass on the information. We have recommended language to include with the card and to have on the website. The main education will come when the card is mailed."
Public Still Unaware
Jamie Topolski, director of alternative payment strategies at Fiserv, said most members of the public are not aware of the liability shift - or precisely what a "liability shift" means.
"People are receiving cards, so there is greater awareness, but they might not know exactly how it is going to work," Topolski said. "Also, not all merchants are ready, so consumers might swipe at one store and insert and leave in at another store. Some grocery chains have multiple systems in the same store, so they all have to be changed."
In the triangle that is credit union card issuers, retailers and consumers, card-issuing CUs "are the most ready," according to Topolski.
"Credit unions are proceeding forward quickly with getting new cards and getting them in the hands of their members, in part to reduce fraud," he noted.
On the other hand, Topolski said merchants are having to make "a lot of changes" to hardware and software. Those that have done the change in other countries are using that experience - Home Depot had to make the change in Canada, as did Walmart. Target has "done a very nice job" educating people who work at their checkout lanes.
"The middle-tier merchants are having a tough time," Topolski said. "They do not have experience with EMV, or they might have customized middleware. There are approximately 5 million of these merchants in the U.S., and I would be very pleased if 10% were ready when the liability shift occurs."
Topolski, who serves on both the EMV Migration Forum Steering Committee and the Smart Card Alliance Payments Council Steering Committee, predicts that the adoption of EMV-ready terminals will "accelerate quickly" once the liability shift happens.
"Every terminal that comes online will have a huge impact on reducing card fraud," he said.
The fifth-annual Hartford Small Business Success Study, released Sept. 29, found just 50% of all small business owners were aware of the Oct. 1 liability shift date. Worse, 86% of small businesses do not currently accept EMV cards.
The latest data from Visa showed the United States has gone from last in the world in chip cards issued to first - in just one year. As of Aug. 31, there were 141.9 million chip cards in the U.S. No. 2 is Brazil with 129 million cards.
Debit EMV Lagging
CO-OP's Thornton said many merchants, particularly big box merchants, will be ready on the credit side on Oct. 1. However, "The debit side will be delayed," she said.
EMV for debit cards is lagging behind credit EMV because of the regulatory framework that grew out of the Durbin Amendment, Thornton said. She noted the technology behind debit transactions previously involved routing to a single network, but the Durbin Amendment required debit cards, regardless of their method of authentication, must allow transactions to be routed to more than one network.
Because of this major change, Thornton believes it may take years for full debit EMV implementation.
Legters said FIS has led nearly 4,000 financial institutions through the EMV migration process, with almost 10 million chip cards produced and issued. The company supplies several functions, from authorization processing to card creation and issuing to platform setup.
"Almost everyone who processes with us uses our card platform," Legters said. "Over the next 36 months most cards will be reissued. The standard reissue cycle is three years, other than a reissue necessitated by a breach. Once a client gets past 50% they often do a mass reissue. The chief drawback to a mass reissue is cost."
According to Legters, consumers are "not ready" for EMV. He said the average wallet has three or four credit cards and one or two debit cards, and only some of those are EMV cards.
"Anything you do to disrupt consumer confidence in the payment area is a potential risk," he warned.
Because FIS is worldwide, the company has been supporting EMV for several years. Legters said of its 4,000 financial institution clients the company already has done a "mass enablement" to ensure the cards issued by those FIs are competitive. This means EMV functionality is ready, and issuers now can distribute or reissue cards on their normal cycle.
"Not every credit union is ready to consider all the ramifications, which is why we created a default setting," he said. "They have to redesign every plastic they have. The implementation part is a huge effort, but once you make one card you can make a whole bunch. We wanted to get everybody ready so they could make those choices."
FIS has received "a lot of positive feedback" from its clients, Legters said. "Because we deal with 4,000 clients we hear every question, so we can share that information. It is a great time to get consumer feedback. Many credit unions took the opportunity to redo their card art."
What Is Next?
Fiserv's Topolski said he sees the current "state of EMV" as "steady progress."
"There are so many financial institutions issuing cards in the U.S., it takes time to work through the sheer volume," he said. "There are so many issuers, and they all have to follow similar steps. There are not as many efficiencies of scale as one might think."
Topolski said the EMV rollout will not be greatly affected by non-traditional payment providers because the new payment technologies still need to transmit information at physical point of sale.
"In many cases they are using traditional technology at the point of sale," he explained. "EMV still is a great technology for that transaction. Apple Pay is using EMV technology for its contactless transactions."
There is a question if some of the new technologies are replacements for EMV, Topolski noted, but he said the answer is "no."
"There still needs to be global interoperability. In many cases non-traditional providers are using EMV technology."
CO-OP's Thornton said everyone needs to remember the liability shift date is just that; it is not a "deadline."
"The sky will not fall on Oct. 1," she said with a laugh. "In fact, the date will come and go with very little impact on the way credit unions do business."
Legters of FIS said there still will be some hiccups, but he insisted the biggest risks have already been addressed.
"It is a planned hurricane - everybody had time to buy water and gas. There were worries about plastic availability and mass enablement, but there was a lot of advance work."
The biggest risk Legters foresees is the mind of consumers. The changeover in credit cards is taking place in October, right before the holiday shopping time, he noted, and if the chip card experience does not go well he worries consumers might stop using that card.
"Credit unions need to do a lot of education," he advised, including having detailed inserts included with the new cards. "I expect to see TV commercials from issuers showing people how to use their cards. There will be lots of news and press. Credit unions need to avail themselves of the media available to them as a way of educating the consumer. Let people know it is to protect them from fraud."
If the CEO of a credit union can be on TV talking about protecting consumers, that is "really good" for the CU, Legters continued. "It shows the credit union is as competitive as a big issuer. Partner with a big depositing retailer, take a news crew down to the store or restaurant, and do a story."
Legters predicted most of the "big box" merchants will be ready for the liability shift. Given approximately 70% of transactions take place at big retailers, he expects few major problems.
"The smaller guys might not move as quickly to change out that equipment, which is why all new cards will have a chip and a mag stripe. There will not be two cards, which helps."
One long-range issue Legters is keeping an eye on: gasoline stations have until 2017 to change their gas pumps to allow for changeout of equipment. "In some cases there will be EMV terminals inside the store but mag stripe cards at the pumps," he said.
