Credit Unions Lag as EMV Chip Deadline Slowly Approaches
As the October 2015 implementation deadline approaches, some leaders who helped credit unions launch EMV chip-equipped payment cards estimated that fewer than 50% of card-issuing cooperatives would have both EMV-equipped credit and debit cards ready in time.
Oct. 15 next year marks the point when the cards’ brands have said liability for fraud losses will shift to the party that has not put EMV cards in place. This means that the party, either the issuer or merchant, that does not support EMV assumes liability for counterfeit card transactions, possibly costing or saving credit unions significant amounts of money.
“Credit unions are definitely gearing up and picking up the pace,” said Barney Moore, manager of card consulting services for Card Services for Credit Unions, the association of credit unions that use the services of payment processor FIS. “But it seems unlikely that they will have gotten it done by next October.”
Moore cited concerns about the costs of issuing the chip-enabled cards among credit unions, as well as delays in ironing out technical details with EMV-equipped debit cards. Another hurdle includes bottlenecks among plastic card suppliers, he added.
“We are urging credit unions that might not be ready to pull the trigger to at least get the project started and get into a queue for a chance to get EMV cards,” Moore advised.
He also said the costs of EMV-embedded cards were running double or more than double the costs of payment cards with only a magnetic stripe. The costs are higher for cards with contactless technology included on their chips.
Roughly 2% of CSCU's 2,600 member credit unions had either completed their switch over to EMV credit cards or were well along in the process, Moore said.
Some executives with other card processing CUSOs reported a larger percentage of their member credit unions have progressed toward issuing EMV-equipped credit cards. However, those organizations also work with fewer institutions.
CO-OP Financial Services, the Rancho Cucamonga, Calif.-based payments network CUSO, did not say what percentage of its 3,500 client credit unions use its debit processing services. However, Michelle Thornton, manager for core products, said the pace has been picking up since the technical challenges have been worked out. Most of the CUSO's payment card processing clients are debit card clients, she noted.
While the path to issuing EMV-enabled credit cards has been straightforward, Thornton explained, issuing EMV-enabled debit cards has been complicated because the industry has had to program debit EMV chips to include the Durbin amendment's transaction routing requirements.
Developing programs to meet those requirements slowed progress on issuing EMV-enabled debit cards, Thornton said. However, adoption has begun to move more quickly now that there are common application identifiers in place for Visa and MasterCard that allow the cards to meet the Durbin regulation requirements.
“There is still plenty to be done but we are well underway,” Thornton said.
Still, she estimated some credit unions will not roll out debit cards by October 2015, preferring to move into this space more slowly and to see how the market develops.
Brandon Kuehl, senior product manager for payments processor The Members Group in Des Moines, Iowa, also declined to say how many credit unions process card payments with the CUSO, but said that 50% of its clients were already issuing EMV-enabled credit cards. The other 50% are on track to have them issued by next year's deadline, he said.
Kuehl attributed the relatively rapid adoption to a streamlined process First Data put into place that took many of the complications out of the decision making process on EMV. Card processor First Data developed the approach in conjunction with TMG, which processes transactions on its platform. PSCU also processes on the First Data platform.
Kuehl said TMG was surprised to see how many of its credit unions had opted to issue cards with both the EMV chips and contactless technology. Seventy-five percent of them that issued cards or were close to doing so had decided for the so-called dual interface.
Cards with both the EMV chips and contactless technology are significantly more expensive, sometimes as much as a dollar more, than cards with only the EMV chip, according to some experts. But these cards will also be well-positioned if contactless point of sale terminals become more common, Kuehl said.
Jon Sarvis, CEO of TMG Financial Services, TMG's agent issuing subsidiary, said most of the CUSO's 100,000-account portfolio will have EMV cards on the way if not actually in hand in time for October.
The CUSO is expected to roll out the EMV cards first to credit union members who travel or work overseas and then to credit unions located in geographic areas with the highest incidence of fraud, Sarvis said.
“Mostly, that means credit unions on the coasts will get the cards first, since their fraud incidence tends to be higher,” Sarvis explained. “Credit unions in the Midwest will likely get them second.”
Arthur Harper, director of card payment solutions at PSCU, was the one executive to report that all 500 of the CUSO's credit issuing credit unions would have EMV credit cards issued in time for the October 2015 deadline, though he acknowledged only 5% had already issued EMV-equipped cards.
“We have 140 in final certification now and the others are on track,” Harper said, adding those CUSO's clients that issue prepaid and payroll cards will also be ready in time.
Harper noted that a large amount of work remained to issue EMV debit cards due to the technical problems that programmers had to work out. He steadfastly predicted that PSCU credit unions would have their debit cards ready on time as well, but acknowledged there may be a traffic jam trying to get so many credit unions certified for EMV debit in the days leading up to the deadline.
“Despite the delay, I think getting debit cards to EMV is more important than credit,” Harper said. “Debit cards are used much more often and therefore, have a much higher incidence of fraud.”
None of the processing executives CU Times spoke to reported large numbers of credit unions transitioning to EMV-equipped cards en masse. Instead, almost all were moving toward a staged rollout that targets overseas travelling or working members first, then planned to issue the rest as part of the natural expiration and reissue process.
In addition, none of the processing executives reported having any credit union clients say they would decline to issue the cards, though all admitted having some clients who said they would issue the new cards after the others did.
However, Harper wondered if those credit unions delaying issuance of the EMV-equipped cards might face a strong backlash from their members, their families and neighbors that do have the new cards.
“I think the message that might send is ‘why don't you care about me and my card security’ or, even worse, ‘why are you so out of date?’” Harper said.