Visa USA's request to recall the holographic magnetic stripe cards will cause a wave of costs throughout the credit card industry, even though the massive card association is promising to absorb at least some portion of those costs.
"We will reimburse our members for reasonable direct costs for or the cost to make and distribute these cards," said Visa Spokesperson Jason Alderman.
The devil, of course, is in the details, and it remains to be seen just how Visa will define "reasonable direct costs." "We are still working out the details for how the claims process is going to work," Alderman commented, adding, "we should have a process in place by the end of this month."
Literally thousands of credit unions issue Visa credit cards either themselves or through a third party, and the card industry estimates some 20 million cards, across all issuers, are already out there.
The new HoloMag(tm) stripe design was popular with credit unions and other issuers because in moving the old dove hologram from the face of the card to the back of the card gave issuers more freedom-and space-for branding and creative designs on the front.
But the HoloMag(tm) stripe has caused some acceptance problems with the cards in low-humidity areas where the stripe has been known to cause static in point-of-sale terminals.
"It's exceptionally rare," Alderman told The Credit Union Journal. "You have to have a perfect storm for it to happen, where there is low humidity and the POS terminals have a low tolerance for static. But even though it is so rare, it impacted cardholder acceptability and reliability, and that is our brand, so we had to act quickly."
But not quickly enough for some credit unions and other card issuers who leapt at the opportunity to issue cards with the new design.
PSCU Financial Serivces, for example, said 90 of its client credit unions are impacted by the recall of the holomag stripe cards.
"We have 130 orders that we facilitated that already have the holomag(tm) stripe on them," said Donna Floyd, PSCU-FS product analyst. "That represents about one million cards that are just waiting to be embossed."
The CUSO said it is working on behalf of its clients to ask Visa to grant them a two to three month variance that would allow those credit unions to issue the existing HoloMag(tm) cards stock until the card association comes up with a new design to replace the soon-to-be-dysfunct design.
"Everyone was very enthusiastic about the HoloMag(tm) stripe design," PSCU-FS Director of Credit Services Kenton Potterton related. "Given that enthusiasm, we would expect that once a new design is available that credit unions will opt to migrate to whatever that new design is, once it's available. We are encouraging our credit unions to keep their inventories small and just wait and see."
TNB Card Services is working on behalf of its clients to negotiate with plastic providers, as well as Visa, to help keep the cost of reissuance down for credit unions, as well, said SVP-Sales and Marketing Glen Lee.
"We are working closely with Visa," Lee said. "They have been very upfront and open on this. We have been told not to destroy the stock that we have but reissue cards using the old design with the dove on the front."
Lee noted that he has heard of no incidence of the static problem with any of the holomag cards that TNB's clients already have out there, adding that it was his understanding that this was much more of an issue outside of the U.S.
Because the mass reissuance of cards has nothing to do with fraud, the costs are not covered by the CUNA Mutual Group bond, CMG said.
That leaves the question of costs between the actual makers of the holographic materials, the makers of the cards themselves, the issuers of the cards, and, of course, Visa.
"We shipped a significant number of cards already, definitely in the millions," said Didier Printing's Bill Lynch. "We're a fairly small outfit, so 20 million cards sounds about right to me."
And that doesn't begin to cover the cards that haven't been made, yet, but for which card makers like Didier have already purchased the materials.
"All of the manufacturers are sitting with holographic material on our shelves," Lynch offered. "It's bad for the whole industry. There was a very significant cost to go to the holomag stripe."
And Visa knows it.
"We recognize that this is an inconvenience and that it is a real problem, and we truly regret it," Alderman said. "That is the reason we are acting so quickly."
