Is Your Credit Union Prepared for EMV Changes?

A lot is going on in the payments arena, and all of it will eventually affect credit unions in one way or another. There are many things to consider, running the gamut from value enhancement and membership growth, to non-interest income and cost of entry/ongoing operations. 

In October 2015 liability shifts to non-EMV participants in the credit card payments process. The good news is that, beginning next October, merchants whose POS readers are not EMV capable will be liable for fraud if the card used to make the purchase is EMV capable. The bad news is that if the merchant is EMV capable and the card is not, the issuer (credit union) will be liable for fraud. In simple terms, fraud liability will fall to the weakest link in the payments chain.

There is no regulatory requirement for credit unions to move to EMV, just the liability shift from MasterCard and VISA. Credit unions choosing not to supplement mag stripe capability with a chip are making a cost / benefit decision, believing that incremental losses will be less than the cost of a card issue. It is important to note that a reissue will supplement, not replace, the magnetic stripe with a chip.

In the first stage of the EMV conversion, cards will have both a chip and a mag stripe because merchants will not convert all POS terminals to EMV by October 2015. “Automatic fuel dispensers” (gas pumps) are not subject to the liability shift until October 2017. Mag stripes will be eliminated from the card down the road, probably in the course of normal card replacements, when EMV is universally adopted.

One more thing, credit unions can be both issuer and merchant. If the credit union drives ATMs or has cash advance terminals, the equipment will need to upgraded with chip readers to avoid potentially becoming the weak link in the payments chain if a fraud is perpetrated using the equipment.