By the end of 2015, 70% of U.S. credit cards and 41% of U.S. debit cards will be EMV enabled, and chip-and-signature will be preferred by issuers out of the gate, according to a recent survey.

The big banks, which control a huge percentage of U.S. cards, will be responsible for much of the movement, reports Aite Group, which conducted the study in April and May.

But credit unions and community banks are not likely to convert as quickly.

"I have talked with a lot of credit unions recently, and I think less than half of all CUs will convert to EMV by the [October 2015] liability shift deadline," said Julie Conroy, research director for retail banking at Aite. "Credit unions are all over the map. Some realize the exposure and don't want to get hammered with fraud costs while others hope fraud is just a problem for the big financial institutions."

Aite's study found that the EMV-enabled card issuance process will ramp up in the fourth quarter of 2014, with eight of 18 issuers interviewed beginning general issuance to the public by the end of 2014 and three additional issuers beginning general issuance by the end of the first quarter of 2015.

The study covered 18 of the top 40 U.S. credit card issuers, including seven of the top 10.

Conroy warned that those that do not keep pace and convert along with the large numbers of cards that will be EMV enabled by the close of 2015 will face significant fraud losses.

One of the clearest indicators that criminals are rapidly increasing their attention on the U.S. market, the last G20 country to convert to EMV, is that credit card fraud rates are now 10 cents out of every $100 transacted — double the figure from 2007. "Debit card fraud is also experiencing rapid rates of increase," she noted.

Conroy said waiting past 2015 will cost big and small issuers alike. She reminded that for some time criminals have clearly targeted small shops.

"As we all know, the bad guys do their homework and you see today that as BIN numbers get sold in underground forums, the BINs will be labeled 'not yet EMV enabled.' "

Just as big banks will likely move sooner than smaller FIs, small retailers will lag behind big-box stores that are expected to be EMV ready by the liability shift deadline. Conroy said a number of big issuers are counting on that happening.

"Some of the issuers I spoke with are planning to be 100% EMV enabled by October 2015 because they want the merchants to pay for their costs for EMV conversion," noted Conroy, who said issuers believe the fraud losses passed onto merchants not yet EMV ready will be significant.

The October 2015 liability shift deadline from the major payments networks shifts fraud liability to the weakest link in the payments chain. Therefore, if the issuer's EMV card is used on a terminal that does not have EMV capability, and fraud occurs on that card, the merchant picks up the costs, and vice-versa.

The Aite study also found that the majority of card issuers in the study are choosing to initially issue chip and signature cards. Conroy said chip and signature is preferred over chip and PIN due to lower implementation costs and because signing at the point of sale is what consumers are accustomed to doing.

"It is a highly competitive cards market and issuers are wary about having to teach Americans too many new things at once," said Conroy. "They want to keep things as simple as they can. Plus, they want the experience to be not much more different than when a consumer pulls out a mag-strip card-they don't want their EMV card shoved to the back of the wallet."

As the numbers in the Aite report show, debit's conversion to EMV will lag behind credit. But Conroy said that 41% of U.S. debit cards being EMV enabled by the end of 2015 is a much higher percentage than projections from one year ago.

The federal appeals court decision in March to overturn U.S. District Judge Richard Leon's ruling last year to invalidate the Fed's debit interchange guidelines has added a great deal of clarity to the future of debit and given FIs confidence to make decisions about the payments method. The Target Corp. data breach, as well, has spurred movement.

Conroy noted that those institutions that are not waiting for the liability shift deadline and getting out ahead of many FIs by offering EMV cards today gain a marketing advantage.
"As we move toward the liability shift deadline and education around EMV ramps up their absolutely is a marketing advantage in that chip," she added.

In Alexandria, Va., State Department FCU has been promoting its EMV card heavily on its website.

The card has been out for more than a year and the $1.6 billion CU said it appeals to the large segment of its membership who travel outside the U.S. and have understood EMV for some time, as well as to a growing portion of cardholders.

"EMV is a marketing advantage because we now have a product that more people are learning about, are interested in and want," said Marketing Manager Carrie Shaffer.

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