Phil Tschudy
608.665.7188
philip.tschudy@cunamutual.com
Rick Uhlmann
608.665.8940
rick.uhlmann@cunamutual.com
Move Will Reduce Magnetic Stripe Fraud, Improve Competitiveness and Help Issuers Prepare for Mobile Payments
SAN DIEGO – Credit unions issuing debit or credit cards should plan to migrate to chip technology soon or risk becoming less competitive and more vulnerable to traditional magnetic stripe fraud, three speakers told an America’s Credit Union Conference Discovery breakout audience Monday.
Ann Davidson, CUNA Mutual Group senior consultant, Risk Management, Hap Huynh, business leader, Chip Infrastructure Management with Visa, and Leanne Phelps, senior vice president of card services at State Employees’ (N.C.) Credit Union, offered their own unique perspectives on chip technology, but agreed it’s time for credit unions to move away from the magnetic stripe.
“The U.S. is the last country in the world to convert to chip technology across its payment structure, which has made us the magnetic stripe fraud hot spot for criminals worldwide,” Davidson said. “We’re easy money.”
The Secret Service reports magnetic stripe skimming cases have risen by 10 percent over the past three years. In addition, Nilson Report research indicated U.S. card fraud losses are more than twice as much as global fraud losses – 9 cents compared to 4.5 cents for every $100 in transactions.
Migrating to Euro MasterCard/Visa (EMV) contact and contactless chip technology will help combat card-present magnetic stripe fraud. “By having chip technology as an additional payment option, credit unions will likely experience a significant decrease in counterfeit magnetic stripe fraud provided their cardholders use the chip capability on the card,” Davidson said.
Chip technology offers various options for credit unions including chip and PIN or contactless technology (Visa payWave/MasterCard PayPass).
Huynh explained how chip technology works, emphasizing it is safer than the antiquated magnetic stripe, and it paves the way for innovation. “Dynamic authentication employs unique data in each transaction, which enhances security,” he said. “The standard chip fields also support mobile near field communication and contactless and contact chip transactions.”
Other forces are pressuring card issuers to make the switch. Visa announced last August plans to accelerate the migration to EMV chip technology in the U.S. MasterCard also announced all Maestro ATM transactions occurring in the U.S. will need to be compliant with EMV standards to avoid a liability shift.
“If the acquiring entity does not support the chip transactions, they may be financially liable for magnetic stripe fraud,” Huynh said. Visa’s liability shift to the acquirer is Oct. 1, 2015 (Oct. 1, 2017 for fuel merchants), while MasterCard’s shift of liability to the ATM owner for Maestro transactions is April 2013.
“When merchants become responsible for fraud losses, many will opt to no longer accept the increased risk of accepting magnetic stripe transactions. If you’re not offering chip technology, your cards may not be accepted, which will create PR and member service issues and put your credit union at a competitive disadvantage,” Huynh said.
U.S. cardholders are already finding it increasingly difficult to use their magnetic stripe cards in foreign countries.
Credit unions that have deployed chip technology anticipate eliminating their risk to magnetic stripe fraud when cardholders fully utilize the chip capability. State Employees’ Credit Union successfully completed its switch to chip technology in 2011 for more than 1 million debit cards, Phelps said. State Employees’ is currently migrating their existing credit cards.
Davidson and Phelps emphasized employee and member education is key to a successful migration to chip technology. They advised developing print and online educational information that help members understand how chip technology works when performing a transaction.
Accelerating the deployment of chip technologies will create a much more secure payment environment, according to Davidson. It will also continue to move the U.S. payment system toward using mobile payments by building the necessary infrastructure to accept and process chip transactions that support either a signature or PIN at the point of sale.
“Plan your migration now. Early adopters will minimize their risks, and those that wait will put themselves at risk because they’ll be the most vulnerable to fraud,” Davidson said.
CUNA Mutual Group insurance, retirement and investment products provide financial security and protection to credit unions and their members worldwide. With more than 75 years of true market commitment, CUNA Mutual Group’s vision is unwavering: To be a trusted business partner who delivers service excellence through customer-focused products and market-driven insight. More information on the company is available on the company’s website at www.cunamutual.com.
CUNA Mutual Group is the marketing name for CUNA Mutual Holding Company, a mutual insurance holding company, its subsidiaries and affiliates. Life, accident, health and annuity insurance products are issued by CMFG Life Insurance Company. Property and casualty insurance products are issued by CUMIS Insurance Society, Inc. Each insurer is solely responsible for the financial obligations under the policies and contracts it issues. Corporate headquarters are located in Madison, Wisconsin.