5 Issues to Address Before Boarding the EMV Bus
Issuers, merchants and card brands are finally in the process of aligning in the United States. The stage is set for EMV to be mass adopted after 20 some years, and the time to act is now.
Security breaches in the marketplace continue to rise with the recent Target, Neiman Marcus and Michaels fiascos making headlines in early 2014. Unfortunately, these are just the latest in a long line of significant security breaches that demand change in the credit union industry.
Shortly after these breaches were announced, Visa and MasterCard re-affirmed their timeline of October 2015 for the card fraud liability shift to occur. As credit unions begin to evaluate the implementation of EMV, several key questions should be top of mind.
Why should I care?
EMV presents a new layer in security to card portfolios and greatly helps to prevent card present fraud. EMV also adds a new cost component to issuers’ portfolios that should be managed.
What are EMV’s advantages?
Adding another layer of security, worldwide acceptance, and EMV paves the way for contactless and mobile payments. There are also future uses of EMV such as storing ID info, rewards, and even event entitlements.
What are the disadvantages?
EMV will cost more and does not address card not present fraud such as Internet banking, e-commerce, mail, and phone orders. For example, Canada experienced a 25% increase in CNP fraud from 2009 to 2010, just at the time when chip + PIN was rolling out on a massive scale throughout the country. For the same period, total card fraud of all categories rose by only 2.05%.
How do I calculate ROI on EMV?
EMV is not a project that is expected to produce a positive ROI. A reduction in fraud costs is the only lever that could possibly produce positive returns, but do not expect this. EMV is about moving the industry forward with security and is not a cost savings play. The results of the conversion to EMV in Australia, Canada and the United Kingdom have shown us that over time, card not present fraud will dramatically increase as it will be the newest path of least resistance for fraudsters.
Will EMV prevent merchant breaches?
Probably not. The Target breach did not happen because of stolen or fraudulent card use. The only true way to prevent this type of breach is to encrypt the cardholder data all through the merchant systems. The industry is years away from solving this challenge, but encryption and tokenization are on roadmaps.
Should I care about the fraud liability shift date?
Visa and MasterCard have announced October 2015 for a liability shift to take effect. Basically, the fraud liability for card present transactions will shift to the party not equipped for EMV. For gas pumps, the date is October 2017.
What kinds of fraud will EMV thwart?
EMV provides additional protection with card present transactions and makes it much more difficult to produce counterfeit cards.
Issuing EMV is not as simple as just ordering a new batch of cards. To properly convert to EMV issuance, a number of issues need to be addressed. The following are five key issues credit unions interested in pursuing an EMV initiative will want to put at the top of their focus list.
- Assess the impact of EMV issuing. Does the credit union have the controls, procedures and systems in place to support EMV? Understanding the financial impact and budgetary preparation of card issuance is an important aspect. Integration of Instant Issue, changes in member behavior and operational support are all aspects to consider. Vendors will be involved in this process as your card brand, card processor, PIN network, and core vendors will all need to be in sync here. There is a certification process to go through from a processor and network standpoint as well as obtaining certification for credit union-issued cards.
- Devise an issuance strategy. Determine what your chip card replacement strategy will look like. EMV cards cost more than conventional cards, but they also last longer. It should coincide with card reissue cycles and coordinate with the Oct. 1, 2015 timeline.
- Define your EMV card details. The EMV card design requires personalization for each credit union as well as certification. This is in addition to the typical artwork approval and design process.
- Educate staff. Credit union employee education is a critical step in the process as the front lines will be fielding a number of member questions about the little gold chip on their new cards.
- Market the card. Implementing EMV can be seen as a one-time opportunity to present a positive message relating to fraud to members. Design of the cards, branding and member education are all very important aspects of a successful EMV rollout.
As the credit union industry matures with EMV deployments, this technology will transition into the mainstream. Converting to EMV is not really a question of if any more but rather, when. Credit unions need to begin preparing and planning for this or risk missing the bus.
Ryan Rackley is a director with Cornerstone Advisors Inc. He can be reached at email@example.com or 480-423-2030.