RANCHO CUCAMONGA, Calif. — The road to EMV has been bumpy-as technological, legal and business issues prompted two years of delays, but the Oct. 15, 2015, deadline is now less than a year away.
But there is a road less traveled: EMV for debit cards. While most of the focus has been on EMV for credit cards, the chip technology for debit cards has the same liability deadline, noted Michelle Thornton, manager, core products for CO-OP Financial Services. "Some, more than others, understand the complexity of EMV for debit."
"EMV was not designed to work the way it will need to in the U.S., given the rules from the Durbin Amendment and the competitiveness of all the networks," Thornton said, noting it took two years of discussions involving the entire debit card industry, plus the EMF (EMV Migration Forum), the Debit Network Alliance (DMA), and merchant groups, to determine a solution.
"The solution involved people who had competing interests, based on the nature of the U.S. system," she said. "A solution was conceived, but the full development will take longer, especially on the terminal side. Terminal manufacturers give different estimates as to when they will have machines installed, but we fully expect Walmart, Target and other big box merchants to be ready by the liability shift date."
Brandon Kuehl, senior product manager for The Members Group, said the U.S. is "ready" for EMV debit cards, but cautioned there are too many roadblocks to issuer revenue to begin distributing debit EMV cards immediately.
"Regional PIN networks, PIN processors and most merchants are not yet equipped to accept the U.S. common debit AID transactions," he wrote in a white paper. "Therefore, any transactions made with U.S. debit EMV cards today will not likely route to an issuer's PIN network partner. Instead, they will travel on the global AID rails (i.e. directly to MasterCard or Visa). Any cost savings or revenue the issuer typically enjoys with its PIN network partner would not be realized."
Kuehl said the biggest obstacle to EMV implementation has been the number of debit networks that exist. EMV "was not really intended" to route through 16 or 17 different networks, he added. "Probably about a year ago the EMV Migration Forum agreed on a protocol that issuers and terminal manufacturers could agree upon," Kuehl said. "Because so many processes are affected, it takes time to get all that code ready."
Issuers are currently going through mass projects as the calendar turns to 2015. The bigger networks "might be a little farther along than the smaller ones," he estimated. "Everybody is now coding to this new standard, so credit unions should be reaching out to their vendors-starting with their card processors."
CUs typically have multiple PIN debit networks, based on what they want to offer or how they are looking for pricing advantages, according to Kuehl. He said they may also have separate PIN and signature processors, and, of course, need to have conversations with the provider of their core processor, Visa and MasterCard as well as their plastic vendors.
"If you look at all those networks, they all have to talk to each other, which means certification," he said. "This ends up as a spider web of networks that all have to talk to each other, or there is the risk of a declined or dropped transaction."
TMG's message to CUs is start now, adding that multiple vendor projects that take time. "Get educated, understand what all the projects entail," he advised. "How are you going to roll out EMV? How are you going to educate members? Big banks and merchants are doing nothing on the education side. Credit unions are all about providing service and a good experience, so it is important to help cardholders understand the benefits of the new cards, and the difference of inserting rather than swiping at the point of sale."
Anthony Genovese, VP- consulting services for Compass Plus, Deerfield Beach, Fla., noted when Canada implemented a liability shift in 2010, the country immediately saw a 40% reduction in fraud. In Europe the numbers were even higher-70% to 80%.
"At this point the shift is inevitable, but a lot of issuers are lagging," Genovese said. "By the end of 2015, 70% of plastic is expected to be EMV, but credit unions are expecting only 50%. There is a risk that at the end of 2015 consumers might think credit unions are behind the times if there is no chip in their card."
If credit unions are waiting for their processors they may need to be "proactive," he said.
With so many EMV issues to keep in mind, Genovese offered a potential game-changer that is getting lost in the shuffle: the potential new capabilities of automated teller machines.
"ATMs usually are thought of as only a place to get cash, but with this new technology it opens new avenues," he said.
The ATM can become an extension of the mobile channel, according to Genovese. Possible uses include allowing members to pay bills or change their PINs. Also, members can use their mobile device to "stage" a withdrawal to help them get cash more quickly.
With all these possibilities, Genovese warned late adopters will be "at the mercy" of processors, and of certification queues. "This is a 9-month to 12-month exercise," he emphasized. "Credit unions will have to understand all the devices they have in the field. Who is the manufacturer? What version? They will have to contact the manufacturer to see if the ATM can be upgraded. If not, a decision needs to be made to replace it, meaning the possibility of a vendor switch depending on if the institution wants the ATM to just dispense cash or have extra features."
Today, CUs need a strategy on how they will handle the future of their ATMs, Genovese said. "Start now, because this process cannot be done overnight. Credit unions also will need to do education, because the way consumers interact with the machine will be different. No longer will people swipe their mag stripe card-instead they put the card in and the machine keeps it."
Based on the experiences of other countries, consumers will be likely to walk away from the ATM without their cards for the first several months after the switch, Genovese said. This means the back office staff will have to be ready for increased calls.
"Credit unions need to understand all these impacts," he said. "Hopefully, during the process, they can retool other elements to be ready to move forward with new technology such as Apple Pay. A lot of the strategy and planning should already be started. The execution, such as buying the hardware and software and replacing the physical devices, comes later."
Genovese suggested forming a committee to determine the impacts of the switch to EMV. Also, a deployment project team on the ATM side should inventory all devices to help provide a cost estimate. CUs should make sure they replace the cards only once, he added.
TMG said more than 80% of its clients' credit portfolios are ready for the EMV standard. To help its clients prepare for the debit switch, the company is developing a streamlined program similar to its EMV for credit process.
Kuehl said most debit card issuers will not have new cards ready by Oct. 15, 2015, because the issues involved are so complex. "Credit unions need to have a team working right now on assembling all of their debit relationships," he said. "They need to know where all those partners are when it comes to readiness for EMV. They have to understand what they have. Many find out as they get into these projects they have other relationships or routing options they had forgotten about. The more they can do on the front end, the better."
Kuehl offered a sample timeline: to meet the deadline, credit unions should have an immediate understanding of their vendors. Between now and the first quarter of next year, they need to communicate with all applicable vendors. Projects will take three to six months, so they will have to have a budget ready in the first quarter of 2015.
"Issuers are churning through so many cards right now, there will be capacity problems with different vendors," he said. "Communicate now so vendors will be ready."
One difference Kuehl sees with debit: issuers want to mass re-issue all mag stripe cards to EMV, whereas credit card issuers are doing so on a rolling basis at the expiration date.
"Debit has more usage, and lately there has been more fraud on debit," he explained. "Debit cards are used more often, so there are more chances for cards to be compromised."
Some good news: Merchants are moving forward "very quickly." Kuehl said Walmart already upgraded all of its stores to EMV, and many other merchants have updated the necessary hardware but have not yet turned on the software.
"It is all about the preparation and planning, and having everything ready as credit unions go into this project," Kuehl said. "I think it should be a fairly smooth transition."