How far have CUS come with EMV?

Most larger credit unions have reis­sued chip-en­abled cards, but some small CUS have lagged — and it’s nearly im­pos­si­ble to get an in­dus­try-wide pic­ture of where adop­tion stands.

Credit Union Journal - - Front Page - BY AARON PASSMAN

MORE THAN TWO YEARS AF­TER THE EMV li­a­bil­ity shift, it re­mains un­clear just how many credit unions have not yet com­pleted their con­ver­sion to se­cure chip-en­abled credit and debit cards.

Nei­ther of the na­tional trade as­so­ci­a­tions nor NCUA track EMV con­ver­sion at a high level, mean­ing any es­ti­mates must come from card ven­dors them­selves.

“There are roughly 6,000 credit unions in the United States and PSCU pro­cesses and rep­re­sents roughly over 1,000 of them,” noted Art Harper, di­rec­tor of card pay­ment so­lu­tions at PSCU in St. Peters­burg, Fla. “I wouldn’t say we defini­tively are the stan­dard in terms of the mar­ket­place … but we are the largest CUSO for credit unions, so we do prob­a­bly rep­re­sent a sub­stan­tial por­tion of that pool. Due to that, I would say the credit union in­dus­try as a whole has been more proac­tively is­su­ing EMV cards than tra­di­tional fi­nan­cial in­sti­tu­tions – i.e. banks.”

Harper said only about one per­cent of PSCU’S credit card clients are not cur­rently live with EMV – fewer than 30 credit unions, he said – while on the debit side, PSCU has fewer than 100 clients left to con­vert.

CO-OP Fi­nan­cial Ser­vices, an­other ma­jor ven­dor of card pro­cess­ing ser­vices, could not say how many credit unions it pro­vides with card ser­vices, but said about 600 clients are cur­rently live with EMV with an­other 200 in the process.

Michelle Thorn­ton, di­rec­tor of prod­uct de­vel­op­ment at CO-OP, sug­gested that across the bank­ing in­dus­try adop­tion is likely at about 65 per­cent, adding, “I don’t think credit unions are any fur­ther be­hind than com­mu­nity banks.”

The credit union ser­vice or­ga­ni­za­tion CSCU has just un­der 2,000 mem­ber-own­ers, and Di­rec­tor of Pay­ments Strat­egy Lou Grilli told CU Jour­nal that about 75 per­cent of the CUSO’S credit card clients have reis­sued Emv-en­abled plas­tic, along with about 50 per­cent of its debit card clients.

Grilli noted that EMV con­ver­sion ac­tu­ally has two dif­fer­ent stages – en­abling and reis­suance. All CSCU credit card clients are Emv-en­abled, he said, and all but about five credit unions on the debit side are Emv-en­abled.

WHY WAIT?

The pur­pose of the li­a­bil­ity shift was to en­sure that in the event of a data breach, the party in­volved in the trans­ac­tion – whether mer­chant or fi­nan­cial in­sti­tu­tion – that was less se­cure would be li­able for any losses. So why haven’t credit unions reached 100 per­cent adop­tion?

The con­sen­sus among most an­a­lysts was that those in­sti­tu­tions that have not yet com­pleted con­ver­sion to EMV are smaller credit unions, an as­sump­tion borne out anec­do­tally by many and specif­i­cally by a rep­re­sen­ta­tive from Van­tiv.

“We do not have [con­ver­sion rates] bro­ken out by as­set size, but at the end of [Q3 2017], 27 per­cent of our FIS had not started an EMV project to con­vert their card base,” Van­tiv reps told CU Jour­nal. “The ma­jor­ity of those clients are smaller, ‘com­mu­nity size’ clients.”

One thing that could be hold­ing back some re­main­ing credit unions from con­vert­ing, sug­gested PSCU’S Harper, is the com­bi­na­tion of higher-pri­or­ity needs.

“Those that may not have cho­sen to do EMV ini­tially, mainly it’s be­cause of the fact that they are work­ing on other, higher pri­or­i­ties,” he said. “Those I’ve spo­ken with in the past were work­ing on pri­or­i­ties like a core con­ver­sion — that usu­ally takes prece­dent. You don’t want to im­ple­ment some­thing on one plat­form and then have to move it to an­other plat­form, and then not have the abil­ity to have that chip sup­ported and have to do a sec­ondary mass reis­sue.”

And smaller CUS may also have other fac­tors at play in their de­ci­sions, he added.

“For a smaller credit union that is not part of a CUSO en­vi­ron­ment that can lever­age the CUSO from a cost stand­point, [con­ver­sion] would prob­a­bly be a lit­tle more chal­leng­ing for them,” Harper said. “What we have seen is that a lot of mem­ber-owner credit unions have done dif­fer­ent things to off-set the costs, such as brand flips, and within brand flips, may have moved out of plat­inum card is­suance to things that pro­vided higher in­ter­change in order to off­set that cost.”

NEVER-END­ING BAT­TLE?

EMV cards carry a longer life­span than tra­di­tional mag stripe cards, which – along with re­duc­ing the po­ten­tial for fraud – was sup­posed to help re­duce costs for is­suers longterm.

But it hasn’t ex­actly worked out that way — at least not yet. The cards carry a life­span of up to five years, but card fraud hasn’t gone down — it’s merely shifted from card-present fraud to card-not-present fraud. And for many FIS, the end re­sult is still the same: reis­su­ing con­sumers’ cards when in­ci­dents of fraud oc­cur.

“These cards might have a longer life­span, but breaches are negat­ing that be­cause [credit unions] are hav­ing to reis­sue card be­cause of so many breaches,” ob­served CO-OP’S Thorn­ton. “I don’t know if there’s go­ing to be any ma­te­rial sav­ings be­cause of the longer life of the card; I think the sav­ings will be in less card-present fraud.”

CSCU’S Grilli added that some fun­da­men­tal changes are tak­ing place, but they’re hap­pen­ing slowly be­cause they take time and cost money.

“As more chip cards are reis­sued, the chances of coun­ter­feit cards de­crease,” he ex­plained, adding that in­creases in to­k­eniza­tion will fur­ther se­cure con­sumers’ pay­ment in­for­ma­tion. “As far as reis­sues down to zero, we won’t be there in three or four years—[cus are see­ing] de­creas­ing reis­suance and de­creas­ing use­ful­ness of the data that is breached, and hope­fully that will drive costs down for the is­suers.”

PSCU’S Harper, how­ever, coun­tered that cost sav­ings from ex­tended card life­spans could be­gin to show up within the next 18 months, adding that many CUS have al­ready seen sav­ings as card-present fraud has gone down.

“Last count was, due to EMV, around $7 mil­lion that PSCU has been able to save from a fraud per­spec­tive from an EMV trans­ac­tional sav­ings,” he said.

Still, re­minded Thorn­ton, fraud­sters haven’t ex­actly stopped try­ing.

“For ev­ery­thing we come up with, they’re com­ing up with ways to break it,” she said. “Cer­tainly card-on-file to­k­eniza­tion for on­line mer­chants is help­ing or will help – any to­k­enized pay­ment is a big help. I use Ap­ple Pay as of­ten as I can; I see it as be­ing more se­cure. I think all of those things will help, but it will con­tinue to be a bat­tle we fight ev­ery day.”

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