The U.S. was one of the last countries to convert to EMV chip cards, at least partly because of the cost involved for the country's massive payments system to replace the easy-to-duplicate mag-stripe cards and halt counterfeit fraud.
Even after the Oct. 1 liability shift for merchants not accepting EMV cards, the costs are still adding up. In its first guidance since the liability shift, the EMV Migration Forum published a white paper of best practices to help issuing banks convert instant card-issuing capabilities to the more complex EMV format.
Banks have most recently used their branch offices to provide instant card issuing for customers opening new accounts or upgrading features on their cards. Banks had also viewed the instant card process as a way to quickly issue new cards when a customer reported one lost or stolen. Some in the industry feel EMV is an opportunity to make instant issuing a key customer loyalty offering.
But the complexities of dealing with EMV instant issuing is the perfect example of underlying chip-migration costs that banks had a hard time explaining to those outside of the industry calling for EMV a year ago, said Angela Angelovska-Wilson, a financial services and banking lawyer at Reed Smith LLP.
During the Target breach hearings, Congress was quick to say the U.S. had to have chip cards after the data breaches because the entire world had them, Angelovska-Wilson said.
"But those out there in the payments industry couldn't explain, in that setting, all of the details that go along with production of these cards, or policies and procedures that have to be changed every time," Angelovska-Wilson said.
Instant card issuing has become a major customer service improvement in many banks, Angelovska-Wilson added. "It is an attraction to walk into the bank branch and have a card issued, but now the banks are faced with EMV, and that changes everything."
It didn't take long for issuers migrating over to EMV to find out they couldn't provide the level of service and support [with instant card issuing] any more without making the investment to build out the infrastructure, said Randy Vanderhoof, director of the EMV Migration Forum.
But converting instant-issue equipment and processes to EMV is not a snap-of-the-finger task, especially for smaller banks possibly looking to just begin instant issuing.
The forum's white paper suggests a timeline of about three to four months to address security risks and key management, server updates, card management updates, payment network certifications, hardware configurations, card personalization software and other issuer implementation tasks.
For some issuers, it may be cost prohibitive to jump into EMV instant issuing when comparing the costs of instant issuing of mag-stripe cards, Vanderhoof said.
"It's definitely an investment because they have to build a new support infrastructure to issue the cards because data elements programmed into the chip are different than the mag-stripe," Vanderhoof said.
For a mid size bank with 50 or 60 branches, the costs of getting cards distributed to all of those branches, and paying the network fees to manage the keys and other tasks, will likely be higher than what it experienced previously, Vanderhoof added.
Like any other expenditure, each bank will have to weigh the pros and cons and calculate the expected return on the investment.
It's all part of the need for the forum to continue providing future guidance and addressing EMV questions and issues, a task that is not going to fade in the aftermath of the liability shift.
While the first month of the EMV migration "is actually meeting expectations" in terms of merchants accepting cards and banks issuing cards, Vanderhoof said, there was a big compliance push in the finals weeks before Oct. 1 rather than a gradual buildup.
The forum expects similar pushes in the future from market segments not as quick to adapt to EMV, such as small businesses, hospitality and entertainment, and the table-service restaurant industry. In addition, the fuel industry has until 2017 before its EMV liability shift.
"The sentiment in the industry was that this was really just the starting gun going off as far as changes taking place," Vanderhoof said. "As we go into 2016 and beyond that, there will be another wave of merchants who are going to need the same level of training and support."
The Oct. 1 liability shift occurred at the same time as mobile payments and security technologies were rapidly advancing, Vanderhoof said. "Many merchants will be taking a closer look at a lot of new stuff in the pipeline, because they had their heads down and working to get EMV implemented properly."
It all points to the EMV Migration Forum staying in the forefront for some time to come.
"As an organization, we are getting into the finite areas of the marketplace now where additional support and education may be needed," Vanderhoof said. "Our members stay engaged and continue to work on deliverables. Before EMV, there was no organization like this that was doing education on a national scale specific to payments."