Fraud Liability Shifts Increase Urgency for Migration to Chip Technology

But Online Discovery Audience Told Even This New Technology Not Fool-Proof

– For more than a year, CUNA Mutual Group’s Ann Davidson has been preaching to credit union card issuers the need to migrate from magnetic stripe to chip technology to prevent fraud and remain competitive. While some are heeding her advice, others are not, so she made another plea to an Online Discovery Audience Tuesday.

Davidson, senior consultant, Risk Management, said the magnetic stripe has been around since the 1960s and is going the way of the dinosaur worldwide. However, the U.S. is the last country in the world to convert to chip technology across its payment structure.

“That continues to make us vulnerable to magnetic stripe fraud, including ‘Card Present Counterfeit’ schemes such as point-of-sale skimming, data breaches and devices on ATMs,” Davidson said.

The Secret Service reports magnetic stripe fraud cases have risen by 10 percent over the past three years. In addition, Nilson Report research indicated U.S. card fraud losses are more than twice as much as global fraud losses – 9 cents compared to 4.5 cents for every $100 in transactions.

Migrating to Europay/MasterCard/Visa (EMV) contact and contactless chip technology will help combat card-present magnetic stripe fraud. “By having chip technology as an additional payment option, credit unions will likely experience a significant decrease in counterfeit magnetic stripe fraud provided their cardholders use the chip capability on the card,” Davidson said.

Chip-and-pin technology is considered much safer than mag-stripe, Davidson said, because authentication employs unique data for each transaction, which enhances security. The contactless chip field also supports mobile near field communication (NFC) chip transactions.

“Remember, during the migration to chip, cards will maintain the magnetic stripe. It will be important to have ongoing education to cardholders to teach them to not swipe their card and instead use the new chip technology.

After switching to chip technology, Canada’s annual debit card fraud dropped by more than half from $142 million in 2009 to $70 million in 2011, she said.

Other forces are pressuring card issuers to make the switch. Visa announced plans to accelerate migration to EMV chip technology in the U.S. Likewise, MasterCard announced all ATM transactions occurring in the U.S. will need to be compliant with EMV standards to avoid having issuers accept fraud liabilities.

“Likewise, if the acquiring financial institutions’ merchant entities do not support chip transactions, they may be financially liable for magnetic stripe fraud,” Davidson said. Visa’s liability shift to the acquirer/merchant is Oct. 1, 2015 (Oct. 1, 2017 for fuel merchants). MasterCard’s liability shift to the ATM owner/acquirers for Maestro transactions is April 2013, and in October 2016, all fraud liability will shift to ATM owners/acquirers.

“When merchants become responsible for fraud losses, many may no longer accept the increased risk of accepting magnetic stripe transactions. If you’re not offering chip technology, your members’ cards may not be accepted, which will create PR and member service issues and put your credit union at a competitive disadvantage.”
U.S. cardholders are already finding it increasingly difficult to use their magnetic stripe cards in foreign countries.

Davidson praised credit unions switching to chip but cautioned that even this new technology is not flawless. Reports from the United Kingdom indicate it’s critical to make sure the PIN number is unpredictable (random) and not set up as a potential predictable number that could be easily solved by criminals. “Ask about PIN predictability when you make the change.”

In summary, Davidson said the time to migrate is now. “If you’re last in line to deliver chip technology, you may end up first in line for fraud.”

Online Discovery is CUNA Mutual Group’s Web-based equivalent of a face-to-face conference without the associated expenses or time away from the office. The free, online event attracted a national and international audience of more than 1800 credit union and league staff. The conference aims to help credit unions solve problems, face challenges, and address opportunities all from the convenience of their computer.

CUNA Mutual Group insurance, retirement and investment products provide financial security and protection to credit unions and their members worldwide. With more than 75 years of true market commitment, CUNA Mutual Group’s vision is unwavering: To be a trusted business partner who delivers service excellence through customer-focused products and market-driven insight. More information on the company is available on the company’s website at

CUNA Mutual Group is the marketing name for CUNA Mutual Holding Company, a mutual insurance holding company, its subsidiaries and affiliates. Life, accident, health and annuity insurance products are issued by CMFG Life Insurance Company. Property and casualty insurance products are issued by CUMIS Insurance Society, Inc. Each insurer is solely responsible for the financial obligations under the policies and contracts it issues. Corporate headquarters are located in Madison, Wisconsin.

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