Change is in the cards, literally. Europay, MasterCard and Visa technology is coming to the United States and bringing with it a host of benefits for cardholders and issuers, including enhanced security and international compatibility. If embracing the future of card technology isn’t incentive enough for credit unions to make the switch, both Visa and MasterCard already have plans to shift fraud liability to issuers and acquirers that aren’t EMV chip-enabled starting in 2013. Like it or not, it’s time to start thinking about the change.
But with that said, it might not be time for credit union card issuers to act–yet. Converting the nation’s millions of cards, processing terminals and banking systems to EMV may take as long as a decade or more. During this process, credit unions may find themselves most appropriately in the position of managing change rather than spearheading it. The following is a brief overview on EMV: what it is, why your credit union might want it and how the transition to this new technology is likely to unfold.
EMV technology relies on the chip card (or smartcard), which looks just like the standard magnetic stripe cards in use today. The difference is a tiny microprocessor embedded in the card itself. In addition to holding a wealth of encrypted data, this chip runs its own operating system. The result? Far greater security than any magnetic stripe can promise. Chip cards are nearly impossible to counterfeit, even after years of widespread use in Europe and abroad.
Chip cards are also in widespread use in Europe, most of Asia, most of the Middle East, Canada, Mexico, Brazil, Chile and most of Africa. Travelers to EMV zones may encounter problems trying to use cards with magnetic stripes. For frequent travelers especially, the conversion to EMV technology will be a welcome development.
And indeed, it’s only a matter of time before the U.S. becomes EMV-enabled. Both Visa and MasterCard are planning incentives for issuers and merchant acquirers to make the switch.
As of October 2012, merchants will be exempt from PCI reporting for Visa if they process 75% of their Visa transactions on EMV-enabled terminals.
In April 2013, merchant acquirer processors and sub-processors must certify support for and accept EMV chip cards. Also, ATM acquirers will assume counterfeit fraud related liability if a non-U.S.-issued EMV MasterCard is used at an ATM that is not EMV-enabled.
October 2015 is the target date for Visa, MasterCard, American Express and Discover’s liability shift for counterfeit POS fraud. Liability will be assessed to the party that did not enable the chip-to-chip transaction. In the case of issuers, this applies if your cards are not EMV chip enabled.
As it stands, adopting chip card technology seems inevitable and, in fact, not without significant benefits for card issuers. If chip cards are the future, why not ride the first wave right now?
For the vast majority of credit unions, there isn’t much percentage in doing so. With a few exceptions (for instance, credit unions with a large number of members who travel or live abroad), most credit unions are not facing widespread consumer demand for EMV. American consumers are not up in arms. Most aren’t even aware of what EMV is.
If you did issue EMV-enabled cards today, few cardholders in the U.S. would see a benefit. Why? EMV-enabled terminals are still practically nonexistent in this country. Establishing standard protocols for EMV will be complicated, requiring not only the wholesale turnover of cards, equipment and systems but also the hammering out of network issues. This is going to be a long, gradual process.
As EMV technology rolls out in the States, demand and utility will rise while costs will almost certainly drop. Experience will help vendors at all levels of the conversion gain efficiency. That should mean lower pricing and fewer potential pitfalls.
In the meantime, my own company, CO-OP Financial Services is helping member credit unions bridge the gap with phased-in services. The first phase provides on behalf of processing for EMV-enabled cards. Transactions are authenticated via EMV but completed by magnetic stripe.
It’s CO-OP’s intention to stay ahead of the changes to come, and to help member credit unions navigate the sometimes muddy waters of this conversion process. Change may be inevitable, but it should be manageable as well.
Michelle Thornton is a senior product manager at CO-OP Financial Services.
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