Many credit card issuers will not have fully implemented EMV technology by the October deadline, according to PaymentsSource.
While the financial industry has been concerned about the number of retailers that won't be ready for EMV by the October deadline, banks also won't have full functionality for the system. In October, there will be changes in fraud liability primarily affecting retailers, but also the card issuers.
EMV stands for Europay, MasterCard and Visa. It is a global standard for inter-operation of integrated circuit cards (IC cards or chip cards), IC card-capable point of sale terminals and automated teller machines. It authenticates credit and debit card transactions.
Many of the issuers that will not have fully implemented these changes are banks that are spreading the migration expense out over time, according to PaymentsSource. These banks cannot pay for the expense of migration in one quarter, said James Sills, CEO of Mechanics & Farmers Bank, with $289 million in assets.
"Your income statement can probably handle it better if you spread it out, rather than do it all it once," Sills said.
The costs associated with EMV will be significant. Fifth Third Bancorp (NASDAQ: FITB), with $139 billion in assets, estimates it will spend about $15 million on EMV upgrades in the second half of 2015.
Each card embedded with an EMV chip costs $3.50 to $4, Sills said. Banks must also upgrade ATMs so they can accept the cards. Aite Group estimated this process will cost $2,000 to $3,000 per machine.
The danger in not being fully EMV-compliant by October is that banks will be exposed to greater liability until all cards and ATMs are upgraded, said Charles Bradley, senior VP for consumer planning at Fifth Third. The bank has developed a rollout schedule that converts cards with the highest transaction volume first.
"We'll go first with our highest spenders and international travelers and then move through the rest of the portfolio when we can," said Jim Bell, senior VP of card services at Fifth Third. "We expect to be nearly entirely migrated by the first quarter of 2016."
The First National Bank of Omaha, with $17 billion in assets, has about 4 million credit cards in circulation. It is taking a calculated risk by not fully upgrading by October, said Mihaela Kobjerowski, VP for consumer marketing. Since fewer than half of merchants' terminals will be EMV-enabled by the deadline, the chance of First National being subject to fraud is lessened, she said.
Also the bank will be able to monitor the system while it waits and get a better sense of how it will work, she said. "We wanted to do it gradually to have a chance to observe consumers' behavior and learn from it," Kobjerowski told PaymentsSource.
Correction: This story originally stated the deadline for EMV adoption as October 31, but most in the credit card industry say, unspecifically, "October," except for Visa which says October 1. The story has been corrected and FierceRetailIT apologizes for the error.
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