The U.S. has been slower to adopt EMV payment systems than Europe and Canada, but new laws the implementation of the payment method may be arriving too soon for some credit unions. In October, a new law will go into effect that holds merchants liable for credit card fraud if EMV payment systems are not used during a transaction. Many credit unions feel they are unprepared for this changeover, and executives have expressed concern that their organizations will be held accountable for fraud charges as a result.
The introduction of EMV payment across the nation has huge implications for consumers, merchants and financial institutions, and the rollout of new policies will undoubtedly result in some confusion. An awareness of the issues facing credit unions and merchants should allow executives to properly plan for the advent of new payment processes.
What the October deadline means
EMV, which stands for Europay, Mastercard and Visa, is a system also known as "chip-and-PIN" because it combines small wireless communication chips embedded in every credit card with a PIN password system. As a result, EMV eschews the magnetic strips that have defined credit card transactions for decades. The magnetic strips that are present on all credit cards present a security liability for customers, and a chip-and-PIN system has the potential to be far more secure. To incentivize the adoption of new EMV payment terminals, lawmakers have instituted a change in the way fraud liability will be handled.
As of October, the merchant will be held liable for fraud that results from a transaction that did not use an EMV payment terminal. This represents a substantial change from the current law, which places the responsibility for reimbursements on the credit card company after fraud occurs. The October deadline puts pressure on credit unions that have yet to upgrade their payment terminals or send new EMV-equipped cards to members. That pressure is mounting as the year progresses, but many credit union execs remain confused about what their organizations can do to prepare.
Credit unions need to update their systems to support EMV cards, and should distribute EMV cards to all their members. This includes both debit and credit cards, and the switch has the potential to be expensive for credit unions. In August 2014, the Credit Union Times reported just 2 percent of credit unions were prepared for the transition. In the months that followed that report, many credit unions have enhanced their capabilities, but full compliance before the October deadline seems unlikely.
The Credit Union Journal noted that credit unions are probably better positioned to respond to the EMV changeover, because their portfolios are already centered around credit. At the same time, the source noted the distribution of EMV-equipped debit cards lags behind credit cards. While Europe and Canada provided a model for EMV-enabled credit cards, debit cards required a different approach. The proliferation of regional debit card networks means EMV adoption for these cards could trail credit cards by a year or more. Credit unions that don't begin their update process soon could find their systems fall behind competitors' offerings.
Update now for peace of mind
By implementing these technologies before the mandated October start date, credit unions will give themselves plenty of time to test the new systems to ensure they will work for members. At the same time, conflicts within the EMV standard make it difficult for credit unions to move forward with parts of the update, including new debit cards for members. Credit union executives need to watch this space closely to adequately prepare their organization for the switch.