New Orleans--As credit and debit card issuers start to see the benefits of EMV-chip card security, prepaid would seem to be the logical next step. But prepaid issuers remain unconvinced of the security benefits of EMV.
EMV is a security method with a very narrow focus: counterfeit card fraud. It is effective at cracking down on the rampant cloning of credit and debit cards, but there simply isn't as much of a demand to steal and drain prepaid card accounts.
"The business case for prepaid and for private label really are pretty poor, honestly," said Bret Berta, product manager for global retail payments at FIS, at SourceMedia's annual PayThink conference taking place this week in New Orleans. "We get a lot of questions [from issuers], then we don't hear anything back for a while."
In the U.S., a liability shift took effect in October of 2015 that penalizes the party that has the poorest security in place for card acceptance. This motivated issuers and merchants to implement EMV for open-loop credit and debit cards, but the problem with prepaid cards is that issuers don't feel that they will benefit from the investment in EMV security.
Many prepaid cards are offered for one-time use, and that category is "not even a conversation at this point," Berta said. Private-label credit cards are in the same boat, though there is an interest in using EMV for store-branded open loop Visa and Mastercard products, he said.
Other categories are also not aggressively following the U.S. shift to EMV, such as Electronic Benefit Transfer (EBT) cards.There is some movement in the EBT category, but not a lot. For example, the U.S. is converting the Direct Express prepaid card for unbanked Social Security recipients to chip cards.
"The fraud challenges that EBT has aren't necessarily related to counterfeit," Berta said.
Jamie Topolski, Fiserv's director of alternative payment strategies, noted that a few exceptions are starting to appear, often based on the way a particular audience uses the prepaid card.
With general purpose reloadable (GPR) prepaid cards, "a lot of those cardholders aren't going to be the traditional unbanked," Topolski said. Banked consumers use GPR cards for budgeting, or to provide limited funds to a child.
"They're gonna want that EMV chip for those kinds of uses," Topolski predicted.
However, he doubts that every prepaid card purchased from a J hook in a convenience store is going to have an EMV chip out of the box. Issuers may want to monitor how each individual card is used, and reissue certain cards that have had a steady number of reloads.
The open-loop credit and debit card issuers, which are starting to see the benefits of EMV security, are more committed than ever, Topolski said.
In the beginning, many tried to control costs by simply replacing older magstripe cards with EMV cards over the course of their natural issuance cycle; when an older card expired, it would be replaced with a new EMV card.
Many banks now see that process as too slow, Topolski said.
"We've had a lot of clients moving to accelerated reissueance, whereby they try to get all of their cards reissued over the course of a year," he said.