What’s The Hurry? No Rush Needed On EMV Liability Shift.

Credit unions need not fear EMV "liability shift day" but it's time to start thinking about when to leave magnetic stripes behind.

Card-issuing credit union should have Oct. 15, 2015, circled on their calendars.

That’s liability shift day, the day that Visa and MasterCard (as well as Discover and
American Express) will move the liablity for losses in card-present fraud to the party that didn’t have EMV technology in place.

That day presumably won’t be sneaking up on anybody, but whether to set aside magnetic stripe cards in favor of the internationally used embedded chips is not a decision credit unions need to make today, or even tomorrow.

In fact, CO-OP Financial Services expects another 10 years at least to pass before a majority of American issuers have adopted EMV chips.

During this time, millions of credit/debit cards will be reissued while payment processing terminals and banking systems are overhauled, the processing CUSO for 3,000 or so credit unions says in a white paper on EMV adoption.

Titled simply EMV Adoption, the eight-page report lays out the EMV security features and card payments process in terms laymen (like me) can understand, including the fact that the liability shift involves everyone in the transaction flow.

That includes CO-OP. It’s a big project for us, as it is for any other processor, because we expect virtually all of our credit unions to move there in the next few years, Michelle Thornton, CO-OP’s manger of core products, told creditunions.com in an interview.

The report also puts the Durbin Amendment requirement for dual networks (there are 18 debit networks in the U.S.) in context and offers details on the European and Canadian experience.

Back home, the liability shift and EMV adoption includes a lot of players: terminal manufacturers, merchant acquirers, merchants, EFT processors, networks, issuers, card manufacturers, card personalization bureaus, and core processors.

For terminals, both POS and ATM, it’s not only a question of new hardware, but new software. While many newer terminals have the hardware to accept a chip card, they do not have the software to read the chip, Thornton says.

Conventional wisdom holds that the nation’s massive fleet of POS devices will be in for a widespread upgrade anyway, to include the ability to handle contactless payments from Apple Pay and other emerging competitors. The CO-OP report, however, says just when critical mass occurs is a question unanswered.

About The Cost

CO-OP estimates the cost for a credit union to migrate from magnetic stripe to EMV at about $25,000 to $60,000, depending on size and technical configurations.

Meanwhile, POS counterfeit fraud costs card issuers about 3 cents per swipe. CO-OP estimates that approximately 50% of fraud is due to counterfeit cards created from skimming, something that EMV would presumably reduce, as it has elsewhere.

The cards themselves also are sharply more costly than magnetic stripe stock. Render Dahiya, CEO of Arroweye, says that can be by a factor of six when ordering 10,000 cards, depending on the vendor. He says his company has been producing EMV cards for about a year and has come up with a way to embed, personalize and ship in customized lot sizes in 24 to 48 hours.

In that regard, the CO-OP report says, While the cost of EMV cards has decreased, the certification and implementation investment remains high for early adopters. Industry experts expect standardization and streamlining of implementations to normalize and lower costs in 2015.

Factors to consider when deciding if and when to make the move, Thornton says, include marketing strategy, cardholder acquisition and card-holder retention. Credit unions also will need to assess whether personalization vendors and EFT and core processors can accommodate the embedded chip card technology.

So, like with every other technology advance in recent years, each credit union must decide for itself when costs, risk reductions, and reasons are there to justify the EMV switch.

If it’s global interoperability, start with your credit card portfolio, Thornton says. Talk to your staff to find out what they are hearing from your international travelers. Analyze your transactions to determine what segment of your portfolio will likely travel internationally in the next 12 months. She also notes that Visa and MasterCard rules require merchants worldwide to accept U.S. issued magnetic stripe cards, but for those few unmanned terminals.

Indeed, reaching positive ROI for EMV chip cards will depend on many elements, not just fraud reduction, and likely will be years down the road, Thornton says.

Finally, staying informed is a good idea. Credit union executives can keep up by following developments from the Debit Network Alliance and Smart Card Alliance and by setting Google alerts for keyword like EMV, chip card and NFC, Thornton says.

December 4, 2014

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