EMV migration is going to be an expensive endeavor for every player in the payments ecosystem — processors, card Issuers (banks and credit unions), ATM operators and merchants.
Card issuers must license application IDs and produce new plastics that will now be two to three times more expensive than mag stripe card costs. ATMs will need new hardware and software. And on top of all of this, consumers will need to be educated on the new process.
Fortunately, there are ways to help reduce cost and frustration during implementation.
Credit Cards vs. Debit Cards
Does it matter when it comes to EMV? No, both debit and credit cards are going to need to be converted to the United States EMV standard. However, most card issuers have fewer credit cards than debit cards; therefore, it is recommended that financial institutions tackle the credit card portfolio first. This allows project managers to become familiar with the conversion steps on a smaller group of cards — before setting their sites on the larger, more active and more sensitive debit card portfolio.
Some financial institutions still issue ATM only cards. Yes, I know; WHY? This is a topic for another blog…
Since the majority of these cards are linked to savings accounts, many don’t have POS capability. (If these cards are linked to a Checking Account, see Analytics/Card Issuance below.) Without the POS capability, the financial institution doesn’t have to hurry to beat the October 2015 liability shift. Instead, the target date becomes October 2016, when the liability shift at the ATM goes into effect. This gives the issuer time to develop strategies specific to the need/use of ATM only cards.
Many financial institutions created customized card designs that will need to be modified due to the location of the EMV chip. There are many generic plastic designs available to financial institutions, which can reduce production cost. However thousands of financial institutions have chosen to create a customized card design. These institutions should obtain an EMV card design template from their card manufacturer and ensure their design will work with the chip. Remember, there are approximately 10,000 financial institutions all going through the same process. In-depth discussions and planning with your plastics provider will prevent a last minute design compromise and help reduce the possibility of a delay in your timeline.
Analytics / Card Issuance
Typically, only 45-55 percent of the cards in a debit card portfolio are active (1 transaction in the last 30 days). Many cards are never activated. Some are activated but never used and end up occupying space in a wallet or file cabinet drawer. With the high cost of EMV plastic, creating a program to target active cards for upgrade could help reduce initial costs. A follow-up plan to determine whether inactive cardholders plan to use their debit cards can also help reduce overall expense, by eliminating cards that opt out of the service.
Card Activation Programs
Few financial institutions focus on the card activation process. If you are going to spend money to create and issue EMV cards, you need to ensure the cards are getting activated AND used. Whether you are issuing Instant Issue cards or delivering a plastic by mail, a little bit of attention to the new account or cardholder can turn a potentially complacent card carrier into a card user. Card issuers need to use the reports supplied by the card processors and track the metrics surrounding card activation and usage for the first 30 days. If the consumer hasn’t begun reaching for your card by then, they have someone else’s card at the top of their wallet. After 30 days, it’s an expensive marketing battle to try and displace that incumbent card. And when you are ready to send your new EMV card out, make certain your cardholders are aware of the switch; set a final date, with plenty of supporting notices, for deactivation of non-EMV compliant cards.
EMV Cardholder Education
EMV can be supported in a contact and contactless environment. To facilitate the contact transaction, the microprocessor in the card transfers data with the acquiring card reader, requiring constant physical contact with the card reader. Near Field Communication (NFC) or contactless readers require a close proximity of the card to the reader in order to complete the transaction. Both processes eliminate the card swipe. Cardholders need to be made aware of the impending change to their payment habits through consistent literature and messaging before and after the switch to EMV.
U.S. ATMs will need to support EMV by October 2016. The terminal manufacturers still need to complete software development in order to support the U.S. Application IDs (AIDs). This is necessary to allow the ATMs to continue to utilize the routing schemes currently used by ATM operators. The first half of 2016 is going to be busy certifying terminals with processors, visiting every ATM to install new software and activating EMV card readers. U.S. ATM operators are learning from their international peers that EMV enabled terminals are experiencing particular maintenance-related expenses due to the new “clamp” process of reading an EMV card. These additional processes and expenses are adding to the financial institutions’ burden of operating an ATM fleet.
ATM outsourcing leverages the economies of scale that larger ATM deployers enjoy while allowing financial institutions to reduce the cost of maintaining and updating ATMs. Additionally, banks and credit unions can recapture a portion of the capital originally invested in the ATM by selling this asset to the outsourcing company taking over their ATM management. This process transfers the processing, liability and maintenance of the ATMs to the new ATM owner.
There are many ways for financial institutions to reduce stress and costs surrounding the upcoming EMV migration in the U.S. However, all of them require advanced planning and an increase in communication with vendor partners and cardholders. The sooner you make your EMV transition plans, the more likely you are to save money and avoid many of the pitfalls other institutions will likely face such as inventory shortages, technician challenges and cardholder confusion.
An industry leader in the payments space, Paul Albright is Executive Vice President of Outsource ATM.
Connect with Paul on LinkedIn or follow him on Twitter.
President & CEO of Outsource ATM, Troy LeBlanc has been helping financial institutions address their ATM needs for almost 20 years.
Connect with Troy on LinkedIn or follow him on Twitter.