October 2016 marks the one-year anniversary of the EMV liability shift, arguably the most important and impactful change in the world of credit cards and fraud-fighting. It was an event widely covered and discussed in credit union circles.
And already the industry is seeing fraud savings. At June 2016, reports showed a couple hundred thousand dollars in fraudulent charges had been sent back to merchants that in the past would have been lost by credit union members. And some estimates showed that MasterCard has seen card-present fraud drop by as much as 73% since the liability shift. That would replicate a similar experience in the U.K.
So, 12 months later: Was the hype worth the results?
Troy Bernard, the director of marketing and products for CPI Card Group, thinks so. CPI Card Group is a provider of EMV, mobile, and prepaid card personalization and fulfillment services.
“At its core, EMV is a major technology investment for credit unions, and all financial institutions,” he says. “The shift impacts almost every organization inside a financial institution’s umbrella: card production and personalization, marketing, customer service, operations, finance, and more. The organization must communicate to its card holders what EMV is, where they can use it, why they should use it, and why this is better than the cards they’ve known for so many years.”
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Jim Pond, the vice president of financial instant issuance at Entrust Datacard, agrees with Bernard when it comes to the EMV.
“In my opinion, the hype was worth it,” he says. “I recently had dinner with one of our customers. By moving to EMV from magnetic stripe [cards] they’ve seen a significant decrease in fraud. We’ve heard similar stories through other customer interactions as well.”
Pond focuses on instant issuance cards, a feature that some 20% of financial institutions in the U.S. offer, he says.
One of these institutions is Listerhill Credit Union ($718.3M, Sheffield, AL), which operates 11 instant issuance machines across its 18 brick-and-mortar locations. There’s not yet one in each branch, but the credit union has plans to correct that by the end of 2017.
Before that, though, the credit union needs to make sure that its machines are able to issue EMV. In September, Listerhill changed instant issuance vendors to offer that ability. There have been some delays, but according to Angie Rutherford, Listerhill’s vice president of payments, the credit union hopes to roll out instant issuance EMV by the end of 2016.
The credit union counts more than 13,000 active credit cards and 6,500 debit cards, according to the credit union’s CFO Clay Morgan. Listerhill mass reissued EMV credit cards in May 2015, but passed at the opportunity to do the same for debit, instead using the natural lifecycle of the card to convert to EMV. About half of Listerhill’s debit cards have yet to convert to EMV.
Both Pond and Bernard’s firms are seeing similar levels of EMV conversion.
Approximately two-thirds of Entrust Datacard’s U.S.-based customer base have converted to EMV from magnetic stripe cards, Pond says; CPI Card Group, in contrast, has seen the conversation rate on all its cards around 60%. According to Bernard, approximately 65% of CPI’s credit cards have converted, compared to 50% of its debit cards.
Bernard finds that larger financial institutions outpace smaller institutions in terms of conversion, especially when it comes to credit cards. And while Pond has found that to be the case as well, it surprised him to see the level of small institutions that did convert.
“We thought out of all our customers, small institutions wouldn’t convert at all or be the last to adopt,” Pond says. “But despite the cost and struggles, we’ve seen a significant amount of them.”
It’s the cost, return on investment, and other internal and external readiness issues that remain the largest barriers to full conversion for credit unions. Without providing specifics, Bernard says the cost of an EMV card is about three times as much as a traditional magnetic strip card.
“When you look at this as an issuer, one of the questions that you are probably going to asked is, ‘What is the value of this investment?’ And not only in terms of the card itself, but any work you’ll have to do with your card processor and internal systems,” Bernard says. “You’ll have to compare that cost to the fraud mitigation savings you’re getting by migrating to EMV. Is there a business case for that? Will you lose business if you don’t convert cardholders to EMV?”
So how much would it cost to reissue nearly 20,000 cards?
“More than six figures. It is not cheap,” Morgan says.
As more merchants roll out EMV-capable terminals and more credit unions feel comfortable rolling out debit cards — there were delays related to Durbin compliance with these cards — both Bernard and Pond see further EMV conversion gains in 2017.
“In 2017, the vast majority of credit and debit cards will be converted to EMV,” Bernard says. “There will be some holdouts but those cardholders will probably fall into the inactive cardholder category.”
Pond entirely agrees.
“The vast majority of cards will migrate in 2017,” he says. “100% of our new customers are adopting EMV and no one is rolling out instant issuance today that’s not EMV. That will continue to be the trend.”
That’s consistent with Listerhill’s timeline as well.
“Based on our current pace, we should be 100% EMV by September of next year,” Rutherford says.
“We’ll let the reissues happen at the speed they’re happening unless there’s some catastrophic fraud event or a merchant breach,” he says. We’ll react to those, of course.”