U.S. banks, credit card issuers and merchants are preparing for a big shift that occurs on Oct. 1, which will change the way fraudulent transaction liability is assigned – but many aren’t yet equipped for the switch.
The change is an attempt to reduce fraud through the use of chip-embedded debit and credit cards that are harder to hack. The switch, known as the EMV liability shift, will assign liability to the least chip card compliant of the parties involved in a fraudulent transaction.
Banks and card issuers have been issuing new credit and debit cards that include the microchips, as well as the traditional magnetic strip, usually as customers’ existing cards expire or need replacement. Banks have also been replacing ATMs so they accept the new cards. They may also improve their atm services to provide more secure and convenient services to their cardholders.
At the same time, retailers have been installing new point-of-sale terminals and the associated technology. But their progress has been slower than banks’ progress. National big box retailers like Walmart have already made the switch, but many small- and medium-sized merchants have yet to convert. Some estimates peg the preparedness of U.S. retailers for the liability shift as of October at 5 to 10 percent, said Jamie Topolski, director of alternative payments at Brookfield-based Fiserv Inc.
“In many cases, smaller merchants know their customers very well, so they aren’t traditionally targets of the same level of fraud, but that could shift,” Topolski said. “If that happens, they will be very quickly motivated and strongly motivated to make the transition to new terminals.”
Two exceptions to the October shift are gas stations, which will have to switch out their pay-at-the-pump technology, and ATMs, which banks will have to replace. Those devices will need to be switched over by October 2017.
Fiserv has been busy helping banks, credit unions and card issuers prepare for the liability shift, since it provides both chip card manufacturing and payment processing solutions. Payments send a lot more information in a chip card transaction, so Fiserv has made several enhancements to its systems to accept and validate that extra information, he said.
Topolski sits on the steering committee of the EMV Migration Forum, which is dedicated to helping the U.S. with its EMV migration. He has been working with EMV technology since about 2008, since many other countries have already implemented it.
Because the U.S. was late to the game, fraudsters have targeted residents’ magnetic swipe cards and financial providers are working to quickly catch up to chip cards, Topolski said.
“Fortunately, everybody is committed to implementing EMV as quickly as possible, but it’s taking a while. We have several thousand banks and credit unions that are already lined up to issue EMV cards to their cardholders,” he said.
One of those banks is Madison-based Wisconsin Bank & Trust, which uses Fiserv as its processor. The companies are working together to upgrade the bank’s debit cards and ATMs, said Scott Moseley, market president for the Milwaukee area.
WB&T expects to have replaced all of its debit cards by the first quarter of 2016. Its third party credit card issuer has already started to send chip cards to customers.
The cost of a replacement card right now is about $1.50, Moseley said. It’s about $1.80 for a chip card, so banks’ costs will go up. But at the same time, the possibility of fraud at the point-of-sale will decrease, which means the life of the card should be longer and the bank’s associated liability lower.
The bank’s ATM replacement costs could also be high, between purchasing a new machine and its housing and getting it installed, he said. There are several levels of ATM, at varying price points depending on their capabilities.
“We have to replace, in our system, 51 ATMs,” Moseley said. “We may change what ATMs we get just because of the sheer cost.”
Green Bay-based Associated Bank has also been reissuing its debit and credit cards, on a gradual basis as customers’ cards expire or need replacement. The bank didn’t have figures on the percentage of its customers who have received the new cards.
Associated Bank has been working to create awareness of the shift among its small business customers, so they can upgrade their terminals, said Brent Tischler, head of payments and direct channels at Associated.
“Our best assumption is about half of the terminals in the U.S. will be EMV-enabled by the end of the year,” Tischler said.
Another aspect for retailers, banks and card issuers to address is consumer education, so cardholders know how to use the chip cards. It will be a different process than the traditional swipe, requiring the user to insert the card into a machine and leave it there until after a PIN is entered.
Fiserv has held a few webinars on the education and marketing side of chip cards, and more than 800 bank and credit union representatives dialed in last month, Topolski said.
Associated Bank has been rolling out a robust communication plan for customers, through direct mail, email, a website landing page and an educational video.
“We’re preparing our call center representatives and our branch teams to respond to customer questions and educate,” Tischler said.
