By Ray Birch
TAMPA, Fla.—It’s July 2, meaning financial institutions are now 90 days away from the October EMV liability shift deadline. What’s the readiness of issuers and merchants, and what should credit unions be paying attention to as the U.S. moves closer to converting to chip and pin?
Those critical questions and others are being explored in a Special Report that launches today in CUToday.info in which CU card processing and payment experts offer their insights. Among those observations: while the Oct. 1 liability shift deadline is an important date, credit unions will have a little breathing room, but get ready, as fraudsters will start zeroing in on remaining mag stripe cards stateside.
Tom Davis, chief technology officer with CSCU, is among those who are forecasting that will be the case. Davis believes it is OK for CUs to begin later this year with issuing chip and pin to members as their cards expire—but those credit unions must also be ready to pull the trigger on the rest of the card base when crooks begin heavily targeting issuers with chip-less plastic.
“Do I think there is a need to do a mass reissue on October 1? No. I don’t think you can justify the cost of doing that. Now do you want a two- to three-year plan of reissuing on expiration? No,” offered Davis, who said the answer is somewhere in between.
Most Merchants Ready
Like several experts, Davis sees the majority of tier one merchants being EMV capable at POS by the end of the year. The same goes for the major card issuers, expected to convert their plastic before 2016, with smaller issuers—including credit unions—lagging behind.
“Some data we’ve seen indicates that 70% of all credit cards will be EMV by the end of the year, and 41% of debit,” said Davis.
Several sources told CUToday.info they continue to see the pace of conversions around credit remaining well ahead of debit, due to the uncer
Tom Davis, CSCU
tainty around debit routing that was created by Judge Richard Leon in 2013 when he struck down the Fed’s debit interchange rules. Judge Leon’s decision was overturned by a federal appeals court in 2014.
Davis said he has seen projections for 47% of the POS terminals to be EMV ready by the end of 2015, and with not all credit cards converted and debit way behind, only 29% of the overall card transactions will be “chip on chip”—chip card and chip-ready terminal—by Dec. 31.
What that means for issuers is that much of the fraud risk—at least for a period—will remain much the same as it is today, sources explained. After the liability shift deadline, fraud costs shift to the weakest link in the transaction chain. But if both the issuer and merchant are not EMV ready and fraud occurs, for those transactions there is no change in liability, noted Davis.
Fraudsters May Delay Mag Stripe Focus
And, with only 29% of the transactions chip on chip, fraudsters’ will likely delay their focus on remaining mag stripe issuers, added Davis.
“As that 29% number starts to move higher, we will begin to see that shift in fraud everyone has talked about,” said Davis. “The fraudster will start to realize which issuer’s cards can be counterfeited. They will find those non-EMV cards and migrate to those issuers.”
The percentage of transactions that will become the tipping point for fraudsters to change their focus is difficult to predict, said Davis.
“But expect that to happen at some point in 2016,” said Davis. “Issuers that are lagging behind, some taking more of an approach to reissue on card expiration, will start to see their fraud numbers begin to pick up a little. That is what to look out for, and at that time possibly consider a mass reissue.”
Partnering with FIS, CSCU in March announced plans to cover the cost of the EMV/chip enablement phase for its 2,300 member credit unions, a move expected to save its member CUs more than $11 million.
“This is going well, and it is moving on time,” said Davis. “We expect credit unions that have taken us up on this offer will be able to start issuing EMV on October 1.”