BofA Becomes First Major Issuer to Begin Conversion to Debit Chip Cards

Bank of America Corp. isn’t waiting for 2015 to convert its debit card portfolio to plastic that supports Europay-MasterCard-Visa (EMV) chip transactions. The Charlotte, N.C.-based banking giant announced Tuesday it will begin issuing debit chip cards to new customers in October, with cards for existing accountholders issued as these cards expire or are replaced for other reasons.

The U.S. payment card industry is moving away from the magnetic stripe card to one that employs a chip that adheres to the EMV standard. The major payment networks have set a so-called liability shift for October 2015 in which the party in a card transaction that cannot support EMV payments—issuer or merchant—will be responsible for any resulting counterfeit card fraud. Fuel-pump operators have two years beyond that to convert.

A BofA spokeswoman says the bank plans to have the majority of its cards converted by late next year. She would not say how many debit cards the bank has on issue.

BofA is the first of the major national issuers to begin the debit conversion. That’s important not only because of the size of Bank of America’s debit card portfolio—it posted $69.5 billion in debit card purchase volume in the second quarter—but also because the debit side of the EMV equation was a debatable proposition until earlier this year.

EMV transactions use common application identifiers to indicate how they should be processed. 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. Under Durbin, a debit card must present the accepting merchant with a choice of at least two unaffiliated networks for transaction routing. Such operations are relatively simple with magnetic-stripe cards but much harder with EMV cards. Visa, MasterCard, and other international networks own the EMV technology, and, operationally, EMV chips weren’t designed to support multiple networks.

The BofA spokeswoman says the bank is “using the accepted industry standard that has been agreed to and certified by all of the networks.”

The bank’s timing makes sense, says David Whitelaw, a director at Edgar Dunn & Co., a San Francisco-based consulting firm. Enough time has passed since the debit issue was resolved, he says. “There’s been a decent amount of time since the deals were passed,” he says.

Because EMV transactions authenticate the card to the terminal and vice versa it makes it more difficult to use a counterfeit card. “The new chip-enabled debit cards will improve the security of customers’ transactions when traveling abroad and at home as more U.S. merchants adopt chip technology,” Titi Cole, retail products and underwriting executive at BofA, says in a press release.

EMV has garnered much attention in the wake of numerous POS data breaches, which may have influenced BofA’s decision, suggests Beth Robertson, principal at Robertson Payment Services LLC, an advisory firm.

“Even though the chip rollout is targeted toward new or reissued BofA debit cards, a breach could affect a significant number of cards being moved to chip,” Robertson tells Digital Transactions News. “And I do think the regularity and scope of recent breaches has more merchants demanding that chip cards be put in play. Likewise, it appears that an increasing number of merchants are getting the requisite readers in place.”

BofA says it has been adding chips to its consumer, commercial, and corporate credit cards since 2012.

That the bank is now focusing on its domestic U.S. cardholders is telling, Robertson says.

“The key cardholder populations that first needed chip were international travelers,” she says. “Otherwise, those cardholders faced potential transaction declines and the issuers faced resulting user dissatisfaction.

“But now that most of those portfolios have issued chip or made chip available, issuers will need to turn to domestic transactions and their cardholder populations. It is notable that we are moving to domestic transactions on the scale of BofA's debit cardholder population, as this is a substantial base of cardholders and must have been deemed more subject to potential fraud than some of the bank's other cardholder groups.”

Whitelaw says BofA’s debit chip issuing plans likely have been in place for some time. The timing is notable because of a perceived increased in consumer concern about payment card security, he says. The recent breaches probably will aid the marketing of the chip cards, he says. “It’s the right environment for people to learn.”

Whitelaw's colleague, Jane Cloninger, director at Edgar Dunn, says BofA's debit chip card action should spur other issuers to reconsider their own rollouts, “as fraud will begin to migrate to those issuers who are the weakest link. In other markets, we have seen fraud increase dramatically at financial institutions [that] lagged the market.”