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Portals and Rails, a blog sponsored by the Retail Payments Risk Forum of the Federal Reserve Bank of Atlanta, is intended to foster dialogue on emerging risks in retail payment systems and enhance collaborative efforts to improve risk detection and mitigation. We encourage your active participation in Portals and Rails and look forward to collaborating with you.

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July 14, 2014


EMV Train is Gathering Steam: Procrastinators Take Warning

With each passing day it becomes more apparent that the United States’ EMV train—the one carrying the chip-embedded credit and debit cards—has left the station and is gaining steam for the ride towards the October 2015 POS liability shift timetable. In a June 12 press release, the EMV Migration Forum estimates that 100 million EMV cards (approximately 9 percent of the card base) will be issued by the end of 2014 plus an estimated 4.5 million chip-capable terminals (approximately 40 percent of terminals) will be installed by year’s end. Demonstrating different perspectives on the speed of the EMV train, two research groups, Aite Group and Javelin Strategy & Research, released their card conversion estimates:

EMC Card Conversion

Javelin also projects that 53 percent of POS terminals will be chip-enabled by the end of 2015.

The newly released PULSE 2014 Debit Issuer Study perhaps best captures EMV’s gathering speed. Of the issuers surveyed for this study, 86 percent plan to issue EMV cards in the next two years, compared to only 50 percent in the previous year’s study. However, the study reveals there is a bit of discrepancy between the EMV plans of large and small financial institutions. About 22 percent of community banks and 17 percent of credit unions have no EMV issuance plans compared to only 4 percent of large banks.

We know from experience that fraud generally migrates to the weakest link. So the EMV issuance findings are a bit troublesome, especially when we consider that the study found credit unions and community banks had already experienced significant increases to their signature debit fraud rates in 2013 from 2012 compared to large banks. Further, in 2013, credit unions and community banks had fraud rates approximately 25 percent and 15 percent, respectively, greater than that of large banks.

Despite the EMV naysayers, the U.S. payments industry is moving ahead with this initiative. For those smaller financial institutions waiting to see how EMV will unfold, the future has become clearer. By not acting, those financial institutions could become the "weakest link" and an easier target for the fraudsters compared to peers and competitors that do migrate. The train is rumbling down the EMV tracks, but there still is time to get an issuance plan in place.

By Douglas A. King, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

July 14, 2014 | Permalink

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