By Ray Birch
ST. PETERSBURG, Fla.—A move by a number of merchants nationally in the wake of the EMV liability shift deadline to accept only PIN debit will likely force some CUs to make difficult decisions next year regarding pricing and fees, suggests one analyst.
Art Harper, director of solutions consulting at PSCU, said that as the U.S. EMV migration moves forward that not all merchants are giving debit cardholders the option to sign—they are forcing all debit transactions to PIN.
Harper’s comments are part of a series of interviews by CUToday.info marking the one-year anniversary of the EMV liability shift.
“Issuers, certainly, will see a reduction in debit income from this,” said Harper. “Credit unions will have to make some adjustments in other areas to make up for this.”
Signature Vs. PIN
Harper said that on average a signature debit transaction returns 1.3% to 1.4% of a transaction, while PIN generally yields .4% or .5%.
“So whether that means charging fees on a checking account or fees for statements, credit unions need to look to other options, as interchange is one of the biggest drivers of non-interest income,” Harper said.
Fraud savings can help offset some of the interchange reduction, noted Harper.
“Does that equal things out end of the day? I don’t know, as every institution’s fraud losses are different,” said Harper, pointing to data that shows a 50% reduction in card present fraud in 2016.
Harper thinks that more merchants will move to PIN-only debit next year, making the impact of this POS shift more noticeable for issuers in 2017. He suggested that credit unions should begin planning for the change today.
Some credit unions, CUToday.info has learned, are making changes to their high interest checking product as a result of local merchants only accepting PIN debit. They are changing the requirement from debit cardholders needing to perform 12 signature transactions to receive the high interest rate to having all debit type swipes count. Harper agrees that credit unions making those kinds of adjustments to keep things simple for cardholders, saving members from trying to determine how merchants are processing their swipes, are smart.
Art Harper, PSCU
“You have to make the cardholder experience a good one. It has to be easy. Because if the experience is not good, there are too many other cards in the wallet, and too many other players who want your business,” said Harper.
Merchants making their own decisions about EMV, and therefore how they will accept chip cards, illustrates the importance of constantly updating and educating members on EMV, said Harper. He said there simply are too many different ways merchants are addressing EMV at the point of sale.
“Credit unions have done a good job educating their members, and they will need to continue to do that,” said Harper.
Last October, big box retailers jumped out of the gate quickly and led the way with POS conversions. But that momentum has slowed in 2016, said Harper. He said that tier three—mom and pop—retailers have moved more aggressively this year and now, as a percentage of terminals converted, are close to catching the major merchants. He said tier two regional stores are now lagging behind.
Slow Chip Transactions
Harper attributed big box merchants backing off their aggressive terminal conversion pace due to concerns over chip cards slowing down transactions, leading some stores to delay flipping the switch to accept EMV. He also said that backlogs in the terminal certification process have slowed conversions as well.
Harper said that Quick Chip and M/Chip, created by Visa and MasterCard, respectively, to improve the speed of EMV transacting, have helped.
Just as other analysts have stated, Harper said issuers have done a great job converting the card base since the liability shift deadline.
“From a PSCU perspective, our issuers have done a very good job,” said Harper. “On the credit card side we are 98% converted and stand at about 75% to 80% on debit. So I’d give issuers an A for their efforts so far.”
Merchants, said Harper, get a B.
Harper believes the EMV migration has turned criminals’ focus away from financial institutions to other areas, such as government agencies and healthcare companies. But he predicts that crooks, who have already stepped up their focus on ATM skimming, will increase those efforts next year as the ATM liability shift deadline from Visa, the last of the two ATM liability shift deadlines, arrives late in 2017.
“I think you will see hackers make one last big attempt to get their skimmers on ATMs,” said Harper.
It will also be “interesting” to see what happens with gas stations, as the liability shift deadline for fuel pumps arrives in 2018, Harper said.
“Exxon recently removed its Speedpass (NFC) service and is accepting Apple Pay at the pump,” he said. “So they are moving to a more mobile environment. I think a question to answer is will some gas stations, as the liability shift deadline nears, move straight to mobile and skip having a slot for a card? This is something to keep our eyes on.”
Additional Stories In The EMV Series