TMG weighs in on EMV

A new white paper from The Members Group entitled The EMV Roadmap: Designing Your Financial Institution's Plan outlines practical guidelines for financial institutions (FIs) considering migration to the Europay/MasterCard/Visa (EMV) standard in response to card brand timelines for EMV adoption and ensuing changes in fraud liability.

"With liability shift timelines in place, financial institutions may feel compelled to implement EMV immediately," wrote co-authors TMG Director of Client Relations Matt Flynn and Brandon Kuehl, TMG Product Development Architect. "However, it's important to understand these timelines are not mandated."

The paper noted that during previous liability shifts, between 30 and 60 percent of merchants and issuers updated their technology in time to meet network deadlines. The authors suggested a pragmatic approach to EMV, urging FIs to prepare a thorough cost-benefit analysis when considering system upgrades that are EMV compliant.

Key points FIs should address:

• How does the potential cost of fraud loss compare to investment costs for an EMV upgrade?
• What is the value of top-of-wallet positioning among international cardholders?
• Which portfolio segments are best positioned for EMV?
• What costs will be born in training employees and cardholders on the new standard?

EMV format conundrum

Once EMV is determined to be the right path, format selection is the next concern to address. Visa reportedly prefers chip-and-signature, while MasterCard prefers chip-and-PIN. The authors suggest hybridization of formats as a possibility, stating, "Today, a given plastic can have both chip-and-signature and chip-and-PIN functionality. In this setup, the card's chip communicates with the merchant's terminal to determine which verification method to use."

One final option offered by the authors is that issuers who choose to migrate to chip-and-signature cards now can add chip-and-PIN functionality later. However, the authors pointed out that chip-and-PIN technology does not allow merchants to designate routing of PIN transactions, which conflicts with the Durbin Amendment to the 2010 Dodd-Frank Act and could exclude debit issuers from the EMV equation. To download the free white paper, visit themembersgroup.com/premvroadmap.

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