Changing stripes: Four things issuers need to know about EMV migration
It’s been a little more than a year since payment-card fraud liability shifted from card issuers to retailers—and in that time, the majority of EMV news has focused on the growing pains of transition. That includes the slow certification processes, low retailer adoption, the absence of PIN verification and exaggerated consumer complaints about point-of-sale inconvenience.
But issuers have continued to make progress in getting chip-enabled cards in consumers’ hands. Mercator Advisory Group, Visa and many others have also reported positive indications that the rollout is making progress. And, to be fair, the Electronic Transactions Association reported that it was originally forecast that 100 percent U.S. adoption of EMV would take five years: about how long it took European nations just to reach the 50 percent mark.
According to Mercator, three in five Americans now own at least one EMV chip card, and they expect that as many as 50 percent of credit card transactions will be chip-enabled by the close of the year. The American Bankers Association reports that more than 700 million chip cards have been issued in the U.S. Believe it or not, the entire conversion is expected to be done by the end of 2018.
Whether issuers are on the fast track to replace 100 percent of mag-stripe cards, or haven’t yet embraced the switch, there are four key factors to plan for:
- “Card Not Present” fraud is just getting started. The transition has indeed driven a dramatic reduction in point-of-sale fraud, as industry experts predicted. In fact, Visa says that card-based fraud is down 50 percent, while card-not-present (CNP) fraud is only up 12 percent so far.
But that number is expected to grow exponentially, and more than outweigh the point-of-sale reductions. As long as cards are still produced with both magnetic stripe and chip functionality, fraud will continue to drive plenty of reissuance.
Why? Because criminals can actually turn off a section of code in the mag stripe (called a bit) that tells the card reader to require a chip transaction. Without that key point-of-sale instruction, we’re back to square one with counterfeit cards.
What does all of this mean for issuers? In short, more replacement cards. Issuers need to budget for and have a seamless production plan that goes beyond the initial reissuance to manage ongoing demand for EMV cards.
- Mobile payments aren’t evolving fast enough to leapfrog EMV. Many critics say EMV is a solution that should’ve been retired before it even rolled out in the U.S. But despite the many predictions that a silver bullet lies around the corner—ready to tackle mobile, faster payments, security and ubiquity all at once—reality says otherwise and issuers can’t afford to wait it out. EMV remains far from perfect. But it will serve as the U.S. standard for the foreseeable future and possibly the basis for future security advances. Consider that credit and debit cards expire every two to three years, and you have a pretty good idea of the impact.
- Prepaid will go to EMV. This will happen despite news reports to the contrary. Why? Because EMV for prepaid is more affordable and easier to implement than ever, and zero-liability policies on many prepaid cards make them worth protecting at the point of sale. True, prepaid has been last in line for EMV but that’s starting to change.
General reloadable prepaid (GPR) cards have been some of the first to come online, as well as certain card types. A switch in fleet cards, for example, will be driven by the 2017 liability shift for fuel station point-of sale locations.
But the evolution of the card issuing process has also lowered the barrier—and it’s become so much easier for issuers to transition. EMV will continue to remain complex, but a process that used to take 8-12 weeks takes as few as two weeks for issuers using the latest manufacturing technology: digital-on-demand.
This fast turnaround is driving a ten-fold increase in the amount of EMV cards issued this year.
- The production bottleneck is a “manufactured” problem. Many banks pushed for an accelerated EMV migration to capture the full benefits of the liability shift and respond to consumer demand. This created a capacity problem for many traditional manufacturing models that take weeks to get cards out the door.
But issuers using modern production technology can convert 25 to 30 percent faster than legacy systems. Using just-in-time production methods and on-demand technology, issuers can rapidly deploy first issue and reissued EMV cards without the bottleneck or the expense of holding chip card inventory.
EMV is a complex transition for any card issuer. But it’s getting easier as all of the players become more familiar with the technical requirements and practical market applications. Card production experts can give issuers the most flexibility to manage demand, costs, risk and future opportunity by leveraging the latest EMV on-demand technology. Or to put it another way, the chip is in the cards.
Render Dahiya is CEO of Arroweye Solutions, an on-demand provider of credit, debit, prepaid and gift cards with offices in Chicago and Henderson, Nevada.