By Ray Birch
CHARLESTON, W.V.–Credit union CEOs across the country seem to have a chip on their shoulders when it comes to a big investment they have made.
In this case the chip is EMV cards. As CUToday.info reported in part one of this two-part series, 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.
Case in point is the $196-million Pioneer West Virginia CU here, which has converted its entire base of 8,600 credit card holders to EMV cards, and reports it has further converted 16% of its 14,700 debit cards, as well–but says it has yet to see the benefit.
“My card staff tell me that debit card fraud has been fairly consistent before and after the EMV upgrades, but we’ve still got quite a way to go before we’ll complete that process,” said CEO Dan McGowan. “Obviously, we hope to see fraud drop as we progress.”
Fraud Still Persistent
But McGowan said that credit card fraud has been persistent despite a 100% EMV reissue.
Dan McGowan
“The predicament here is that most of the fraud among credit card users comes from members who engage in online purchasing rather than point of sale,” he said. “So, our credit union hasn’t experienced all of the promised benefits of EMV—not by a long shot.”
As CUToday.info reported, at a recent credit union meeting there was a great deal of tension between the audience and representatives from Mastercard over the transition to EMV.
“Wow, we’re really glad we made the move over to EMV,” said one CU exec sarcastically. “Now we’re reissuing cards at $5 each, rather than 40 cents.”
Added another person, “We rang the dinner bell and said come get us.”
Some See 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.
For PSCU’s view on that issue, go here.
In Rutland, Vt., Brian Fogg, CEO of the $41-million Credit Union of Vermont, sees PIN-less debit as a big downside from the move to EMV.
Brian Fogg
“One of our larger concerns is that many merchants are shifting their default processing of transactions to debit/PIN based,” said Fogg. “That increases our transaction cost and eliminates a lot of our interchange income. We are currently evaluating possible changes to our pricing policy as a result. We may have to adjust the number of free POS transactions that we offer our members. In the past we had great success educating our members to cancel PIN transactions and to switch to a credit/signature transaction.”
Significant Expense
Fogg added that CUs face a significant expense in replacing all existing cards with chip cards.
“But we have all had plenty of time to prepare for it,” he said. “One way we are managing EMV costs is to increase the reissue frequency of the cards to three years. Another related cost is upgrading our ATM card readers,” said Fogg. “We are seeing lower fraud costs at our credit union, but it is still too early to draw conclusions. It's all about managing costs and resources to achieve the best balance for our members and the credit union.”
Acknowledging that the savings from EMV won’t be immediate, Scott Wilson, CEO of $512-million SeaComm FCU in Massena, N.Y., noted that chip cards are a “stepping stone.”
“We have upgraded credit cards to EMV as well as our ATM readers,” said Wilson. “We have not seen a significant change in our overall fraud exposure. We had very little pre-EMV fraud in card present, and the majority of fraud we have had resulted from card not present and was significantly heightened with major retailer compromises. Therefore, today we have not seen any savings. The fraud which we do experience is in the card not present, and as of today, EMV has not mitigated that significantly, especially with the ever-rising online purchase activity.”
Scott Wilson, SeaComm FCU
Wilson said he has always been “realistic” about EMV.
“Absolutely the cost for issuing EMV chip cards are higher. However, we see EMV as a stepping stone to what is coming next in terms of fraud prevention—tokenization. That is where we will need to be in order to really offset the fraud,” he said. “However, that too will not be inexpensive.”
'Neutral' On Impact
In Phoenix, Ron Westad, CEO of the $1.5-billion Arizona FCU, said his credit union is “neutral” on the issue of EMV value to date.
“I have not seen us experience greater fraud savings, nor have costs been much greater,” explained Westad, who said the credit union has not completed conversion of the card base.
In North Liberty, Iowa, University of Iowa Community CU is already seeing fraudsters alter their tactics post liability shift deadline. Dick Noble, SVP of operations, said the $3.7-billion credit union recently saw a large uptick in fraud from stores, like Walmart, moving to PIN-less debit.
So as the stores move to PIN-less debit to lower interchange, the crooks use stolen cards on transactions that don’t require a signature or PIN, Noble explained.
“Down south, in parts of Florida and surrounding states, we have had to shut off debit card usage because we are experiencing six-digit fraud from the PIN-less debit side,” said Noble.
The credit union has converted its entire credit card base to EMV, and has seen a strong drop in fraud costs on that side of the portfolio. But debit has yet to be converted, and Noble said that the fraud losses to PIN-less debit have more than wiped out the credit savings.
“As everyone expected, crooks just switched how they do the fraud,” said Noble. “If you look at the big picture today, you spend a lot on the EMV upgrade and it really does not control your overall fraud costs. From that perspective, there has not been change.”
While Pioneer West Virginia has yet to experience all of the “promised” benefits of EMV, McGowan said that as CUs convert to EMV, they must remember their “not for profit, not for charity, but for service” motto.
“While we aren’t yet seeing anything of material substance hit the net income line, good or bad, we are still enhancing the level of service provided to members by offering the EMV cards,” said McGowan. “Anyone who has ever had a card compromised knows what an aggravation it is to go through the process of getting replacement cards, updating the data with vendors, and getting back into a normal consumer purchasing routine again.”