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Between the Target breach of late 2013, increasing demands for greater anti-fraud measures, and the October 2015 “liability shift” for card-present POS transactions, credit union interest in EMV implementation is peaking in 2014.
To assist, CO-OP Financial Services has created an extensive primer on EMV adoption. The brief Q & A that follows addresses some of the paper’s key topics, in the form of questions we receive regularly from our clients.
How prevalent are EMV cards worldwide?
EMVCo reports that approximately 2.4 billion chip-based EMV cards have been issued globally. The majority of the world, excluding the U.S., has already or is in the process of migrating to EMV chip technology for debit and credit payments.
It is still early in the adoption process for the U.S., with a small but growing percentage of issuers using EMV. The U.S. has a different payment landscape and is online all the time, which is different from the European model. There were also more considerations for U.S. adoption, such as the impact of the Durbin Amendment and specifically how EMV would affect debit card transactions, which significantly slowed EMV adoption in the U.S.
Why is there now so much interest in implementing EMV in the U.S.?
The Target breach in late 2013 put pressure on the financial services industry to find a fraud solution to the vulnerability of payment card debit transactions. Although EMV issuance for financial institutions may not have reduced the fraud associated with this breach, it has directed more focus on EMV adoption by all parties.
What is the status of U.S. adoption today?
A breakthrough for implementing EMV in the U.S. occurred in February 2014 when Visa announced that it was offering a free perpetual license of its EMV Application Identifier (AID). MasterCard followed shortly thereafter. With most debit networks now having signed with Visa and the expectation that MasterCard agreements are not far behind, a U.S. solution for debit, compliant with the Durbin Amendment (Regulation II), was struck. This move has elevated the EMV implementation from conceptual to imminent.
How will EMV affect financial services providers?
Effective Oct.1, 2015, the “Network of Four” (MasterCard, Discover, American Express, and Visa) will institute a U.S. liability shift for domestic and cross-border counterfeit card-present POS transactions.
Due to the complex nature of EMV, all stakeholders in the payment chain will need to make changes to support EMV. This includes terminal manufacturers, merchant acquirers, merchants, EFT processors, networks, issuers, card manufacturers, card personalization bureaus and core data processors. The path forward forged between the payment card stakeholders is in the process of being deployed, but there is still work on the terminal side of the equation. Merchant terminalization is a critical component of EMV deployment.
How will EMV affect liability?
POS counterfeit fraud is largely absorbed by card issuers at a rate of approximately $0.03 per swipe. When the liability shift is implemented next year, liability will be assessed to the party that did not enable the EMV transaction. In the case of issuers, this applies if cards are not EMV chip-enabled. For merchants, this applies if terminals are not EMV chip-enabled. Fuel-selling merchants will be provided an additional two years for compliance before a liability shift takes effect.
What about credit unions?
While credit unions aren’t required to act immediately, the time to formulate an adoption strategy is now.
Building a solid business case and accurately assessing costs is critical to determining timing. While the cost of EMV cards has decreased, the certification and implementation investment remains high for early adopters. Industry experts expect that standardization and streamlining of implementations will normalize and lower costs in 2015.
Once a credit union has these variables in place, it must next determine if its providers are ready to move forward, which includes assessing personalization vendors, EFT processors and core processor changes to accommodate EMV specifications.
The ROI for EMV chip cards depend on many elements, not just fraud reduction, and will most likely take many years to obtain. Consider all factors when making your decision, including marketing strategy, cardholder acquisition and card-holder retention.
How effective is EMV at reducing fraud?
EMV provides strong transaction security features in card-present transactions that are not possible with traditional magnetic stripe cards. CO-OP estimates that approximately 50 percent of fraud is due to counterfeit cards created from skimming. Fraud statistics in Canada post-EMV adoption are telling. For example, in 2009, Canada’s Interac debit fraud loss was $142 million. Since deploying EMV technology, that number dropped to $70 million in 2011.
EMV adoption will reduce fraud, but keep in mind that at the same time EMV was reducing card-present fraud in Canada, card-not-present fraud in Canada rose. This can be expected in the U.S. also, as EMV is adopted.
Michelle Thornton is manager/core products with CUES Supplier member CO-OP Financial Services, Rancho Cucamonga, Calif. Thornton can be reached at michelle.thornton@co-opfs.org or 800.782.9042, ext. 6162.
