By Ray Birch
ST. PETERSBURG, Fla.—More than a year into the U.S. EMV migration, the debate is anything but settled over whether credit unions are getting the value they had been told to expect from chip cards.
In interviews conducted by CUToday.info with payments experts and credit union CEOs, many questioned where are the savings after having made the investment, while one analyst called the battle between issuers and merchants a “tennis match.”
In this the first of a two-part series, CUToday.info examines the big questions related to the move to EMV, beginning with the view from a processor. In part two, credit union CEOs will offer their views on what their credit unions have experienced, and on what might lie ahead, as many are currently questioning EMV’s value.
Some Seeing Big Fraud Savings
What it comes down to, say analysts, is that some credit unions are seeing significant reductions in fraud losses, some as high as 25% because of EMV, while others are seeing a reduction in interchange and the extra cost of plastics from the shift. The truth, industry wide, lies somewhere in the middle, payments experts agree.
From CUs’ perspectives, the biggest drawbacks from the EMV shift—in addition to the price for EMV plastic being about two to three dollars higher than mag stripe—is rising card not present fraud and more merchants moving to PIN-less debit, where stores route a higher interchange signature transactions over less-costly PIN rails.
At PSCU, where 80% of its members’ credit cards and 60% of debit are now EMV, the CUSO said it is seeing credit unions benefit from chargebacks.
“We have seen our number of chargebacks related to EMV go way up,” said Brian Scott, senior vice president of business alliances at St. Petersburg, Fla.-based PSCU. “Roughly 25% of all chargebacks we are processing are EMV chargebacks, which from a credit union perspective is great. Those are transactions, that without EMV, the credit union would not have been able to recover.”
Brian Scott, PSCU
Scott explained that these chargebacks occur on fraud stemming from a credit union’s chip card swiped on a terminal that is not EMV capable. Due to liability shift rules, those fraud costs are now paid by the merchant, not the issuer.
“And that 25% chargeback number is across PSCU’s entire card base. For credit unions that have converted more than 25% of their card base, their fraud savings from EMV are likely higher,” said Scott.
Tennis Match
Unfortunately, said Scott, the interchange game between issuers and merchants is much like a “tennis match.” If issuers gain fraud savings from increased chargebacks, merchants come up with a new way to get that money back.
“The retailers were successful with the Durbin rules. Now comes the liability shift and many retailers have not made the move to EMV terminals,” said Scott. “Issuers begin charging back more of their fraud costs to stores. So merchants decide to push more signature transactions to PIN.”
Scott believes this could potentially be the biggest drawback, for issuers, from EMV.
“We will see how this ends up playing out,” said Scott. “It is somewhat concerning to all of us—trying to figure out if more merchants are trying to push transactions to PIN away from signature. If more are successful in doing that, it will certainly have an impact on the interchange credit unions earn.”
Scott contends credit unions that have converted their entire card base take a much different stance today than those that have a long way to go before being 100% EMV ready.
“Those that are reissuing on expiration still have a lot of their card base to convert,” said Scott. “So the fraud savings they are getting, like increased chargebacks, is only from the cards that have been converted. And, they are still experiencing leftover fraud on the portion of their card base that is still mag stripe.”
Tensions Mounting?
Scott acknowledged that tensions may be mounting among CUs that are not seeing increases in fraud savings to the point where EMV costs are offset.
“The biggest cost, certainly, is the plastic up front,” noted Scott. “If you are a credit union with 10,000 accounts, at about three to four dollars a card, mailing, costs to process—that can be a $50,000 expense. If you don’t see your fraud costs drop, well…It will take patience.”
Scott said there will be an ebb and flow to fraud reduction and chargeback savings as the migration progresses. More merchants will become EMV ready, but so, too, will crooks change their game.