The EMV card era begins officially for the United States on Oct.1, making it the last developed country on Earth to adopt the new generation of payments processing.
It’s a case of better late than never for U.S. banks and businesses that expect the European export to put counterfeit credit and debit card fraudsters out of business – at least until criminal minds devise a way to defeat the EMV’s chip technology.
So great are the expectations for the smartcard that the industry starting Oct. 1 puts businesses unable to process the cards on the hook for fraud charges. Banks that haven’t issued the chip cards keep responsibility for card fraud.
Named for initial sponsors Europay, MasterCard and VISA, the EMV’s imbedded chip data are read when the card is inserted into a business’s point-of-sale processor. The big virtue – and a reason the EMV has been adopted by other card sponsors such as American Express and Discover — is the chip’s capacity to generate a unique one-time code every time the card is used at a chip-enabled terminal. That makes the cards worthless to thieves who today can steal a magnetic-strip credit or debit card, reproduce its coded information and copy it onto thousands of counterfeit cards.
Banks around the country are issuing more than 800 million of the smartcards. At the same time, retailers, restaurateurs, hoteliers and other merchants are either refitting or changing out their payment processing terminals to handle both the conventional magnetic strip cards and the chip-based EMV card.
Businesses are paying up to $1,000 for each processor. It appears few, if any, are griping about it, though it’s unclear how acquainted Mississippi’s businesses actually are with the EMV card and obligations it places on them.
The Wall Street Journal reported in a Sept. 2 story that nearly two-thirds of companies with 500 or fewer employees say they aren’t ready for the October switch. Many small businesses don’t know about the liability shift or don’t see any payoff from EMV systems, the WSJl reported.
Ron Aldridge, Mississippi president of the National Federation of Independent Businesses, said late last month the processor changeover has not shown up on his radar at all.
And in Simpson County and PriorityOne Bank’s other mostly rural markets, indications are that the ins-and-outs of the EMV card switch over are not fully understood, according to Robbie Barnes, the bank’s president and CEO.
PriorityOne sent its business customers literature detailing the changeover and importance of the Oct. 1 liability deadline. The large volume of calls from businesses afterward surprised the bank, Barnes said.
In north Mississippi, Renasant Bank’s communications vice president John Oxford, said he has traveled “to multiple Rotaries and Kiwanises and given speeches on EMV chips.”
The Tupelo-based regional bank has put special effort into acquainting mom and pop businesses with the cards, Oxford said. “There’s going to be some definite awakening in the small business community when the liability starts hitting.”
At Jackson’s Trustmark, Senior vice president and Director of Bank Operations Nick Anderson said industry experts report a slower-than-expected migration to EMV card processing by businesses, especially in the Southeast. “Big box stores have made the upgrades to the terminals, but most other smaller merchants are showing a slow adoption,” Anderson said in an email.
A similar assessment came last year from SourceMedia’s PaymentSource.com. “Apart from a few companies who have made recent announcements – Target, WalMart and Sam’s Club, there’s a disturbing lack of urgency,” PaymentSource reported in an Aug. 4, 2014 post.
Trustmark’s Anderson said he expects that banks will continue to issue credit and debit cards with both the chip and magnetic strip technologies for another three to five years. It could take that long for businesses to install the chip-capable terminals, he said.
The president of Regions Bank’s Mississippi operation, Arthur DuCote, said his impression is that businesses around the state recognize “this will be good for the consumer and good for them.”
The Mississippi business community embraces it, he said.
After all, DuCote added, it’s “about staying one step ahead of the bad guys.”
Banks are especially upbeat about the change despite the huge costs of reissuing hundreds of millions of cards, and meeting an Oct. 1, 2016 deadline for making ATMs chip capable, according to DuCote. “Most institutions believe the reduction in costs will make up for the costs,” he said, and cited drops of more than 60 percent in fraud losses to banks in the United Kingdom. Even higher reductions have been reported across Europe in the decade-and-a-half since introduction of the EMV card, experts say.
George Marx, president of Copiah Bank and this year’s chairman of the Mississippi Bankers Association, said he thinks banks are getting an assist on the information front from payment processing machinery sales people. “I guarantee that all these merchants are being bombarded” with sales pitches, he said.
Meanwhile, the National Federation of Independent Businesses has been getting a lot of calls to its U.S. headquarters from merchant members wanting to “know if this is a legitimate thing,” said Holly Wade, NFIB’s director of research and policy analysis.
The callers are “worried about being upsold and buying something they don’t need,” she said.
For most businesses, the swapout to the chip-reader terminals is an easy switch, said Wade, who noted the business organization is surveying members nationwide on their switching plans.
One concern is that a huge percentage of the merchant members own their equipment rather than lease it. “That is certainly a population we are worried about,” she said. “They, for the most part, aren’t going to replace their equipment until it dies.”
One vendor, Heartland Payment Systems, is nudging small-scale merchants toward making the switch with warnings they will become prime targets for fraud once larger merchants adopt the chip processing technology. “Incidents of fraudulent cards being presented at small retail locations will increase as national merchants move forward with implementing EMV, and criminals will begin to seek out non-EMV businesses, Heartland said in an information sheet to customers.
“That’s not an unreasonable scenario,” said Doug Johnson, senior vice president of payments and cyber security at the American Bankers Association.
“What’s even clearer is that we’re going to see migration to online fraud” where no card of any sort is produced when a purchase is made, he said.
The American Bankers Association is sending member banks a variety of materials designed to help bankers educate their customers on the new chip cards’ use and benefits, according to Johnson.
Fortunately for banks, the cost difference between the old technology and the new chip cards is “really diminishing,” Johnson said.
Some banks, such as Regions and Renasant, are replacing their customers’ magnetic strip credit and debit cards with EMV cards as they expire.
Copiah Bank has signed on with MasterCard which is going to cover the cost of Copiah’s reissuance, according to Marx, Copiah Bank’s president and CEO. “We’re issuing new cards in February,” he said.
At Magee-based PriorityOne, the new cards will go out early in the New Year, according to Barnes, the bank’s president and CEO. He said PriorityOne expects the new cards will cost slightly more than $4 each, about double the cost of current cards.
Trustmark will roll out new EMV credit cards in October, followed by EMV debit cards, said Anderson, the bank’s vice president and director of operations.
It’s a significant investment, Renasant’s Oxford noted. “However, with the rise in fraud and identity theft, we think it’s definitely a product our customers are going to need in the future.”