Only 25% of Debit Cards Will Have Chips in December: Pulse

Because federal regulations threw a wrench into the debit card industry as it prepared for EMV, merchants will be accepting primarily EMV credit cards when the liability shift hits in exactly three weeks.

The Durbin amendment’s Regulation II, calling for an application identifier on debit cards that would include at least two unaffiliated networks for routing, created a delay of several months in getting chip-based EMV debit cards coded properly and issued.

As such, merchants have been holding off on preparing for EMV debit, at least until after the busy holiday season, while also waiting for issuers to get more cards in the hands of consumers.

That process is in full swing as 90% of U.S. financial institutions either have begun issuing EMV debit cards or plan to do so by the end of the year, according to the 2015 Debit Issuer study from Pulse, Discover’s ATM and debit network company.

The U.S. hits its long-awaited EMV liability shift on Oct. 1. That’s when the party unable to accept chip-card technology becomes liable for fraudulent mag-stripe transactions at the point of sale.

Based on the issuer’s plans, 25% of U.S. debit cards – approximately 71 million cards – will be migrated to chip by the end of 2015. The percentage is expected to rise to 73% by the end of 2016 and 96% by the end of 2017.

This year’s Pulse study “provides the most compelling evidence so far that we are quickly approaching the end of magnetic-stripe-only cards and entering the era of chip cards,” Steve Sievert, executive vice president of marketing and communications for Pulse, stated in a Sept. 10 press release. “With fraud continuing to be a major concern among cardholders and a top priority for financial institutions, the issuance of chip cards represents a major step toward reducing losses from counterfeit cards.”

The majority of issuers, 62 %, plan to implement chip debit cards using an accelerated migration strategy that includes combining natural reissuance when their account holders’ debit cards expire, with a targeted reissuance to heavy card users, international travelers and other customers who request a chip card.

The other approaches are natural migration, used by 23% of issuers, when cards expire and mass migration, used by 15%, to quickly convert all cards.

Issuers will include the so-called common AID on all of the newly issued EMV debit cards. Most are planning on making chip-and-PIN the preferred approach to their cardholder verification method.

While chip-and-PIN is common for debit transactions, the card brands and merchant organizations have tussled over chip-and-signature vs. chip-and-PIN on the credit card side for EMV. Merchants generally seek the stronger security of adding a PIN, while some card networks, particularly Visa, favor signature and fear changing consumer habit and driving up merchant costs with PIN pads.

Financial institutions estimate the cost of a chip debit card will be double that of a standard magnetic-stripe card, Pulse reported. Large banks report the lowest average cost of $2.17 per chip card, while credit unions have the highest average cost at $2.90 per chip card.

Based on the higher cost of chip cards, financial institutions will spend an incremental $69 million to replace magnetic-stripe cards with chip cards in 2015 and $266 million overall for the entire migration period, according to the study.

“The industry’s migration to chip debit cards is not motivated by the promise of profits,” said Tony Hayes, a partner at Oliver Wyman who co-led the study. “Instead, issuers report that they are investing to help safeguard cardholder information, enhance the integrity of the overall payment system and protect their own reputation.”

More than 70% of issuers cite fraud as a key challenge for their debit business. Every financial institution participating in the study reported their cards were associated with a data breach in 2014. However, less than one percent of all cards experienced fraudulent activity.

Overall, issuers reported losses of 0.7 basis points to fraud when the debit card was used with a PIN and 6.1 basis points when the card was used with a signature. These reported loss rates translate into 0.3 and 2.2 cents per transaction, on average, for PIN and signature debit, respectively.

During the past decade, PIN debit loss rates reported by issuers have stayed constant from 0.6 to 0.7 basis points, while signature fraud loss rates have increased by 30 percent from 4.7 basis points in 2005 to 6.1 basis points in 2014.

Aug Sees Record Firearms Sales

WASHINGTON — Renewed calls for more restrictive gun laws, following a succession of fatal shootings in the United States, immediately appear to be generating a boost for the gun industry.

Newly released August records show that the FBI posted 1.7 million background checks required of gun purchasers at federally licensed dealers, the highest number recorded in any August since gun checks began in 1998. The numbers follow new monthly highs for June (1.5 million) and July (1.6 million), a period which spans a series of deadly gun attacks — from Charleston to Roanoke — and proposals for additional firearm legislation.

While the FBI does not track actual gun sales, as multiple firearms can be included in a transaction by a single buyer, the National Instant Criminal Background Check System’s numbers are an indicator of a market upswing in the face of growing anxiety about access to guns.

“Whenever there is a call for gun control, sales increase,” said Larry Keane, general counsel for the firearm industry trade association National Shooting Sports Foundation. “Unfortunately, this is a pattern that repeats itself.”

The summer trend is not on par with the panic buying boom that followed the 2012 Newtown massacre, which jump-started state and federal campaigns for a host of new firearm measures. During the months that followed the Connecticut attack, which featured new calls for an assault weapons ban and expanded background checks, apprehensive gun buyers emptied the shelves of dealers across the country. Yet, the recent uptick represents a similar buying pattern that dates to the uneasy period before 1994 adoption of the assault weapons ban. (That ban expired in 2004.)

Virginia Del. Patrick Hope, a Democratic member of the state Assembly who proposed an expansion of background checks following last month’s shooting deaths of two journalists near Roanoke, said the stockpiling of weapons represented an “over-reaction.”

“We’re not at all threatening any one’s ability to get a gun,” Hope said. “What we’re talking about here is common sense legislation. I don’t think any one is threatened by background checks.”

In the recent Virginia shootings, an attack carried out on live television, gunman Vester Flanagan passed a background check prior to last month’s purchase of two Glock handguns, including the weapon used in the Aug. 26 assault in which reporter Alison Parker, 24, and Adam Ward, 27, were killed. A third person, a local chamber of commerce official, was wounded. Flanagan later used one of the weapons to kill himself.

Hope said his expanded background check proposal, supported by a petition containing 28,000 signatures, is aimed at the unchecked market of private firearm transactions, mostly over the Internet and at gun shows, that account for about 40% of firearm sales.

“I chose background checks, not because it would have prevented (the Virginia shooting) but because this would be easiest to pass,” Hope said. “We will not be able to prevent every single incident. We need to do something.”

But Keane said the legislative proposals commonly offered in the emotional wake of fatal shootings often do not account for specific circumstances leading up to the attacks.

“These things are being offered up before the person is even arrested or before (investigators) even know what happened,” Keane said. “For people concerned about their Second Amendment rights, the concern never goes away.”


Keane said the gun purchases prompted by calls for new restrictions are “certainly legitimate to the person exercising their fundamental civil liberties protected by the Second Amendment.”

“The concern that anti-gun politicians are seeking to infringe and restrict the right to keep and bear arms is very real and well-founded,” he said.

Dan Gross, president of the Brady Campaign to Prevent Gun Violence, said there is risk during periods of increased sales when all purchases are not covered by background checks.

“When gun sales rise, more and more weapons find a set of dangerous hands to call home,” Gross said. “There are people in this country, people like felons, fugitives, and domestic abusers who we all agree simply should not have guns.”



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