As the implementation of new anti-fraud measures for debit and credit cards looms, community banks must work with their processors and sharpen their customer service skills to ensure a smooth transition.
In October, the liability for counterfeit cards shifts to merchants if they fail to properly process cards with EMV chip technology. While it's important for banks to have a plan in place for rolling out the new EMV cards, many smaller institutions are behind in their preparations, industry observers said.
Small banks must work with their card processors to prepare for the switch to EMV, which stands for Europay-MasterCard-Visa. Executives also need to map out a plan for educating customers about how the new cards work.
"Community banks could elect to not do anything," said Greg Coogan, president and chief executive of West Bay Partners, an information-technology consulting firm. "But that could also become a reason not to use your bank's card. At some point, customers will wake up and realize there is something in EMV for them."
A big reason why smaller banks are lagging in EMV implementation is because they lack information about the process. The new cards are also more costly to issue than the old magnetic stripe cards, experts said.
Switching over to EMV could involve a large number of cards and carry a huge cost for community banks, said Sean Curran, a director in the technology infrastructure and operations practice at West Monroe Partners.
Banks have different approaches to phasing in new cards. Some smaller banks are replacing cards as they are damaged, lost or expire, while others are aiming to replace all of their cards before October. Some banks may even target certain customers, like those that travel overseas where EMV is already in place, to provide cards to first.
Belmont Savings Bank, a unit of BSB Bancorp in Massachusetts, has spent the past year developing a plan to replace all 5,000 of its debit cards by October, said Hal Tovin, the $1.4 billion-asset bank's chief operating officer.
"We're all over it," Tovin said. "It needs to be done. The whole liability shift is important to us. We want to protect our customers and we can afford to do it."
Many community banks rely on outside parties for the technology tied to their cards, said Julie Conroy, a research director in the retail banking practice at Aite Group. So it's important that banks reach out now for help.
Otherwise "you have to get in line and wait your turn," Tovin said.
Even if a community bank fails to get its entire portfolio switched over before October, it's still important to be working on it, Conroy said. In other countries that switched to EMV, institutions that lagged behind often became fraud targets. For instance, when Canadian credit card portfolios transitioned to EMV, there was a spike in debit-card fraud.
"If a community bank is going to be late, then they need to brace themselves for that possibility," Conroy said.
Processors will typically have plans in place to help smaller banks switch, Conroy said. Since those firms are helping many institutions, they should have experts and other resources on hand to answer any questions, she said.
Besides working with processors, community banks should develop a marketing plan for letting customers know about the change. Community banks should have an advantage in this area because of their "customer centric" focus, said Scott Broughton, senior vice president of card products and promotions at ICBA Bancard.
"They take pride in their customer service," he added.
Also, community banks should not rely on merchants and retailers educating consumers at the point-of-sale about the new cards, said Liang Han, ICBA Bancard's executive vice president of operations and card risk.
Educating customers must go beyond putting a seldom read insert into a mailing, Coogan said. Rather, banks should use a multifaceted approach that includes updating online information and training branch and call center staff.
Consumers will need to insert chip cards into the reader and wait for it to be processed, which will take a little bit longer than swiping a magnetic stripe card.
There are various resources available for banks to help them explain changes to customers. ICBA Bancard is offering marketing assistance, and Visa has created a video that banks can post on their websites to walk consumers through an EMV transaction, Broughton said.
"Banks need to be far more explicit about what is required," said Nick Holland, head of the payments practice area at Javelin Strategy. "This shouldn't be in the fine print. This should be blatant. Otherwise, the end user will feel stupid when they go to check out and hold up the line."
It shouldn't be too hard to educate consumers, Tovin said. People are much more aware of cybersecurity and fraud due to several widely publicized data breaches, like the 2013 incident at Target.
"It's amazing now how much people are aware of," Tovin said. "People have become almost a little too desensitized to it."