As Debit Issuing Lags, Don’t Expect Debit and Credit EMV Parity Any Time Soon

Consumers this fall will begin to dip a lot of EMV credit cards into EMV-compatible point-of-sale terminals, but not so many EMV debit cards. That’s the assessment from Mercator Advisory Group Inc. in its “Prediction for the U.S. Migration to EMV Debit Cards” report released last week.

By Oct. 1, the date the card networks have set to shift liability for point-of-sale fraud to unprepared merchants, Mercator analyst Sarah Grotta, who heads up the Maynard, Mass.-based firm’s debit advisory service, says only 20% to 25% of debit cards will have chips. Most of that will be from two of the largest issuers, Bank of America Corp.and JPMorgan Chase & Co., both of which have already announced their debit plans.

M&T Bank Corp. announced Monday it has begun issuing EMV debit cards to new customers, with existing cardholders receiving them as their current ones expire, or they can request one.

“We’ll start to see a decent surge this year” in debit-chip card issuing, Grotta tells Digital Transactions News. “Then we will start to see things tail off. It will be a slow march of debit toward EMV.” Including credit and debit, there are about 1.2 billion mag-stripe cards on issue in the United States.

The larger banks, such as Chase and BofA, have the financial, technical, and employee resources to commit to large-scale chip-card issuing, Grotta says. “They have the resources to make it happen.”

Beyond the top 10 largest banks, the wherewithal begins to diminish. “If a bank is not in the top 10, it is probably waiting for a little bit,” Grotta says.

Another issue is that third-party providers may busy with other projects. The nature of the chip conversion, with the universal Oct. 1 liability shift date, means many of these vendors themselves are taxed, Grotta says.

Another factor is the kerfuffle over the common application identifier, a technical component of chip technology. The common AIDs enable PIN-debit transactions originating on EMV chip cards to meet the routing requirements of the Dodd-Frank Act’s Durbin Amendment at the point of sale. Various organizations wanted their own common AIDs, but acquiesced in using those provided by Visa Inc. and MasterCard Inc. “The common AID issue certainly put EMV debit far behind EMV credit,” Grotta says.

This disparity in issuing will complicate matters for consumers at the point of sale, Grotta says. One card may require dipping into the POS terminal, while another, may still only possess the magnetic stripe for swiping. “It can take potentially years for debit cards to have a majority of reissuance taken care off,” she says.

Of utmost importance will be educating consumers about the new cards, and nuances such as the fact that debit cards, even ones with chips, can still be used with PINs, but most credit cards will continue to rely on signatures. “It’s going to be hard,” Grotta says of the education effort. “There are multiple scenarios that could occur. How are you going to explain that on an 8 ½-inch by 11-inch card carrier?”

Despite the silver position of EMV debit issuing, it’s still better than what it might have been, Grotta says. “If it weren’t for Target, we wouldn’t be nearly as far as we are,” she says, referring to the retailer’s breach reported in 2013.

Indeed, the breach has moved card issuers that don’t see much of a business case for EMV. “I’m not sure all issuers are necessarily [convinced] there’s a financial reason for them to go with EMV,” Grotta says. But “if there was another Target, they don’t want to be the one without EMV,” she adds.