Across the payments industry, there has been much discussionabout the approaching October 1 deadline for EMV compliance. Set byMasterCard, Visa, Discover and American Express, this is the datewhen the least EMV-compliant entity – either the merchant or cardissuer – will assume liability for counterfeit card fraud duringU.S. card-present transactions.

While this liability shift will ultimately alter the waycounterfeit card fraud is addressed, the question remains: Whatchanges can we expect to see out in the marketplace on October 1,and what do these changes mean for credit unions?

Expect Business As Usual

“For the most part, October 1 will come and go with very littleimpact on the way credit unions do business,” said MichelleThornton, director of product development for CO-OP FinancialServices. “Even though the vast majority of merchants are not readyfor EMV, credit card issuers are, and many of the nation's largestmerchants will be in compliance as well. Where EMV becomes anear-term issue for credit unions is with smaller merchants thatsee migrating to the technology as either unrealistic or costprohibitive within this time frame.”

In fact, a recent PaymentSource.com article cited projections byJavelin Strategy & Research that up to 75% of all merchants,primarily small businesses, will not implement EMV technology bythe deadline. While statistically speaking that is a big number,Thornton advised credit unions to keep the data inperspective.

“If you look at your overall transaction volume and then examinewhere fraud is occurring, you will find that roughly half of yourfraud today occurs in card-on-file or online payments as opposed toin-store,” she said. “Given that most brand-name merchants areexpected to migrate to the technology by the end of this year, weare talking about a relatively small number of transactions overwhich credit unions could potentially shift some liability to amerchant.”

EMV for Debit Could Take Years

According to Thornton, the nation's migration to EMV for debitwill take much longer than for credit due to regulatorycomplexities. “The Durbin Amendment has dramatically delayed theadoption of EMV for debit here in the U.S.,” she said. “This isbecause the technology as it existed only supported transactionrouting to a single network, and Durbin stipulates that debitcards, regardless of their method of authentication, must allowtransactions to be routed to more than one network. A solution forthis issue was only agreed upon last year. For many merchants,moving the technology from here to there is a complex task that maytake years to complete – not weeks or months.”

Thornton maintained that, given these realities, the October 1deadline should be viewed as more of an incentive to migrate to EMVthan a mandate. “As a credit union, you should have a strategy inplace and be working toward EMV compliance,” she said. “Rememberthat if you become the last credit union to implement EMV security,at some point fraudsters will find your BIN and create falsecards.”

New Point-of-Sale Procedures

For consumers, EMV will present some changes at the checkoutcounter. “When consumers use an EMV card at an EMV terminal, theyare required to insert the card instead of swiping it – even if ithas a magnetic stripe,” Thornton said. “And once the card isinserted, it remains in the terminal for the duration of thetransaction so communication can take place between the terminaland chip. Today, we are accustomed to swiping cards that neverleave our hands. So, letting go of cards – and remembering toretrieve them – are new practices we all have to learn.”

Ultimately, Thornton thinks that EMV adoption will considerablyreduce counterfeit card fraud, but not all fraud. “The nature ofEMV technology makes it virtually impossible for fraudsters toproduce counterfeit cards,” she said. “However, we are cautioningcredit unions to pay close attention to online transactions goingforward. We expect fraudsters to shift their focus to the onlineworld simply because duplicating EMV cards is so incrediblydifficult to do.”

She continued, “EMV delivers far-reaching benefits to U.S.financial institutions, merchants and consumers. In addition topreventing many instances of fraud, it will incentivize merchantsto upgrade their systems to support other emerging technologies,such as near field communication (NFC) used in the new mobilewallets. However, it is important to remember that in most parts ofthe world the transition to EMV took about 10 years. Here in theU.S., we are trying to migrate to EMV in just two or three years.So, while as a credit union you need to become EMV compliant assoon as possible, you shouldn't panic if you are not there byOctober 1.”

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