Come October, all payment card issuers, merchants and acquirers will have to make the switch to the EMV standards. Any party that doesnt go through with the upgrade by the deadline will likely experience an increase in fraudulent payment card liability.
While the majority of larger U.S. financial institutions have already jumped on the EMV bandwagon and started upgrading their systems and issuing new cards to accommodate EMV, smaller banks are trailing behind. Their lack of resources, limited budget and flexibility has made the decision to upgrade much more complex. As the deadline quickly approaches, these banks will have to decide what level of implementation they want to carry out.
Before making a decision, small banks need to weigh all aspects of the EMV upgrade in order to develop a sound plan for going forward. Here are three key factors all small banks should consider:
Determine the long-term benefits.Many small banks view the upgrade as one more compliance headache they have to deal with, but the reality is EMV cards offer customers greater security against fraud at brick and mortars stores, resulting in more satisfied customers long term. In fact, industry analysts expect the EMV standards to lower Card Present fraud and subsequent losses substantially, which totaled 18 billion dollars in the U.S. in 2013 according to Javelin Strategy & Research.
Despite these benefits, small banks are still concerned about the ROI of fully integrating the EMV system. Since each card upgrade can cost up to four dollars, the actual business case may be questionable, particularly given the expectation that an increase in Card-Not-Present fraud will offset brick and mortar benefits. To ease the financial stress, smaller institutions should consider carrying out the implementation in phases and upgrade cards as they expire or distribute new cards based on cardholders level of risk instead of issuing new cards to every customer at once.
Recognize the potential risks. Once the upgrade deadline passes, the fraud liability has the chance to shift. Issuing banks will still carry the burden if the merchant has upgraded their payments system for EMV processing, but the liability will shift to merchants who dont upgrade once the issuer has replaced the existing card with an EMV card. However, banks should note that if they pursue a phased EMV implementation strategy, they may increase their vulnerability to fraud, as other institutions that have upgraded will be safeguarded.
In addition, banks will need to strengthen their internal cybersecurity processes. This is largely due to how difficult it is to extract data from EMV chips, which might lead hackers to attempt to exploit banks internal systems.
Place customers at the forefront. Whether a bank decides to fully transition to EMV right away or through multiple phases, customers will be disrupted. The banks that will have the most successful transitions, though, will be the ones that focus on customer communications and educating customers to ensure a painless transition and minimal service disruptions.
Upgrading all cards at once risks overwhelming banks customer service channels (especially call centers and online platforms), causing further frustration and even attrition among customers. On the other hand, a phased transition may be just as challenging as it gives customers who might not receive their new EMV card right away the impression that their bank doesnt consider their security a top priority.
Financial institutions often leave customers in the dark when it comes to operational changes. But because the EMV transition is so complex, its important banks keep customers informed at every step of the transition process. The EMV upgrade presents banks with an opportunity to prove their customer service skills by guiding customers effortlessly through the process.
Gil Mermelstein is a managing director of West Monroe Partners and a member of the Executive Committee. Sean Curran is a director in West Monroe Partners Technology Infrastructure & Operations practice.