Visa, MasterCard, American Express and Discover have placed a timeline for U.S. EMV adoption, in the form of liability shifts, which has elevated chip card migration from conceptual to imminent.
While credit unions arent required to act immediately, the proverbial writing is on the industry wall. The time to formulate an adoption strategy is now. While the U.S. lags behind the rest of the world, the global brand liability shifts and the recent merchant data breaches have propelled the U.S. forward on the path to EMV.
Effective October 1, 2015, the four networks will institute a U.S. liability shift for domestic and cross-border counterfeit card-present POS transactions. Liability will be assessed to the party that did not enable the chip-to-chip (EMV) transaction. In the case of issuers, this applies if cards are not EMV chip-enabled. For merchants this applies if terminals are not EMV chip-enabled. Currently, POS counterfeit fraud is largely absorbed by card issuers at a rate of approximately $0.03 per swipe.
While Visa and MasterCard havent placed a mandate on issuers or acquirers, the question of whether credit unions should adopt now or wait is a decision subject to a number of respective variables. Most financial institutions and merchants are now moving forward with deploying EMV. Issuers are moving forward on credit cards first, primarily piloting initially with their international travelers.
It is estimated that a majority EMV U.S. adoption will take at least 10 years. During this time, millions of credit/debit cards will be reissued while payment processing terminals and banking systems are overhauled.
The best thing credit unions can do first is answer one basic question: what is the primary reason to move forward with EMV today versus tomorrow? The answer to this question should lead to a detailed analysis and approach.
If it is global interoperability, start with your credit card portfolio, which is used internationally at a higher rate than your debit card. To determine the need, talk to your staff to find out what they are hearing from your international travelers. Do analysis on international transactions to determine what segment of your portfolio will likely travel internationally in the next 12 months.
Build that data into your business case to help you determine when might be the right time to move forward. Until your institution has an EMV chip card, advise your cardholders traveling abroad that Visa and MasterCard rules require merchants worldwide to accept U.S. issued magnetic stripe cards, but for those few unmanned terminals and kiosks that only accept EMV chip cards, carrying cash is a viable option.
Credit unions need to consider whether they will offer a soft rollout or attempt a complete member adoption. The former is probably the better choice for this first-generation EMV deployment in the U.S. Its beneficial to focus on identifying the credit unions international card usage demographic for early issuance, then pilot with U.S. users to learn about of the nuances and needs inherent in EMV before issuing your full cardbase.
If fraud reduction is the primary reason to move forward with EMV now, it is essential to analyze the source of the fraud today. EMV doesnt currently protect against card-not-present fraud. Therefore, credit unions need to investigate how much of respective fraud is related to counterfeiting, skimming or the cloning of cards.
While overall fraud will decline, the liability shift may not have as great an impact as some might think. Industry experts expect that the big box merchants will be ready by the liability shift date. If that is true, issuers will not see fraud liability shift to those merchants, nor will there be a liability shift to online merchants. The pool of transactions eligible for shifting fraud liability to merchants may well be a relatively small portion of overall transactions.
Building a solid business case and accurately assessing costs is critical to determining timing. While the cost of EMV cards has decreased, the certification and implementation investment remains high for early adopters. Industry experts expect that standardization and streamlining of implementations will normalize and lower costs in 2015.
The migration cost to EMV from magnetic stripe can be $25,000 to $60,000 or higher depending on the requirements of the credit union. And there are variables to consider when evaluating costs, such as whether to use contact or dual interface (contact and contactless); the latter is more expensive.
Once a credit union has these variables in place, it next must determine if its providers are ready to move forward, which includes assessing personalization vendors, EFT processors and core processor changes to accommodate EMV specifications.
Credit union executives need to stay informed and should read EMV chip card communications, Visa Business News and MasterCard communications, sign up to receive industry journals/newsletters and set Google alerts for key words like EMV, chip card and NFC.
The best first step a credit union can take is educating themselves on what this technology is and when it is the best time to move forward with EMV adoption for their credit union.
Michelle Thornton is Manager, Core Products for CO-OP Financial Services.
