Happy Anniversary EMV!

Published in the Groesbeck Texas Chamber of Commerce Winter Quarterly

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While the first anniversary of the EMV liability shift quickly approaches in October, we can expect the card brands, Visa, MasterCard, American Express and Discover, to paint a more positive picture than perhaps actually exists.

Why is EMV chip card acceptance important to businesses and consumers alike?

  • The EMV, or EuroPay MasterCard and Visa, standard utilizes chip technology to increase the security of consumers’ payment information and minimize fraud.
  • Fraud cost U.S. retailers approximately $32 billion in 2014, up from $23 billion just one year earlier. To solve the card fraud problem, payment companies and merchants are implementing new payment protocols that could finally help lessen fraud for in-store, online and mobile payments.
  • EMV cards are being rolled out with an embedded microchip for added security. The microchip carries out real-time risk assessments on a person’s card purchase activity based on the card user’s profile. The chip also generates dynamic cryptograms when the card is inserted into a payment terminal. Because these cryptograms change with every purchase, it makes it difficult for fraudsters to make counterfeit cards that can be used for in-store transactions.

What is the liability shift? What does it mean to your business?

After the October 2015 deadline, liability for fraudulent transactions in retail locations shifted from payment providers to the merchants themselves if they did not accept EMV chip cards with a certified chip reader.

The hope had been that the liability shift would serve as an incentive for a swift and orderly transition to EMV enabled technology, but so far that hasn’t been the case.  And sadly, many merchants were at the mercy of their processor who is not ready to implement EMV, even though the merchant may have wanted to upgrade.

The merchants who have not upgraded to EMV chip card readers are seeing chargebacks initiated not by the card holder/consumer, but instead the risk departments of the underwriting bank; basically penalizing the merchant for not accepting an EMV chip card correctly.  That was supposed to be a liability shift only with fraudulent transactions, but again that is not the case.

In reality, U.S. merchants will be hit with $5.8 billion in chargebacks in 2016, a 21% jump since 2015. In just the last three months of 2015, U.S. merchants were flooded with $260.3 million individual chargebacks, 17% more than in the previous year.

What’s the hold up?

Preliminary statistics show that the partial delay in complete EMV acceptance in the USA is due to consumers not receiving EMV chip embedded cards, certainly not by the October 2015 deadline. As of September 2016, Visa says that only 58% of its branded cards in circulation now contain the chip, while MasterCard says that just 67% of its cards have been upgraded.

This contrasts with the rest of the world’s switch, which had mostly progressed without fuss, leading to 97%of transactions being EMV or mobile EMV in Western Europe, 72% in Eastern Europe, and 87% in Africa and the Middle East.

The bigger holdup seems that plans for business owners and merchants kickin

g off the EMV rollout did not properly account for the fact that the U.S. is the most complicated payment market in the world. While merchants in Europe and other areas usually have to deal with fewer than a dozen total payment providers and large issuing banks, retailers in the U.S. must contend with a vast web of hundreds of entities.

Every separate component in the payment process must be evaluated, verified and approved, from the EMV credit card terminal itself to the network connections, processing servers and the hundreds of banks and sales organizations that are waiting for full certification of their systems.

Of the 20 largest members in the National Retail Federation, only 11 are totally compliant with the new EMV system, and that compliance rate drops sharply for smaller retailers.

Visa estimates that barely 30% of merchants in its networks are fully EMV operational, and experts say less than 15% of total merchants are currently EMV compliant.

 

Options and Solutions

In short, the EMV transition is still very much in progress and hopeful expectations is that slightly over 50% of merchants will be accepting EMV chip cards correctly by January 2017.

Merchants should contact their processor or point of sale hardware provider and find out how to get EMV in their business. If they don’t get a firm delivery date, for example 30 days or less, business owners should contact other vendors who are providing EMV equipment for merchants.  Not only will merchants with EMV chip acceptance avoid getting unexpected chargebacks on valid sales, but will provide card holders with the peace of mind they are purchasing from a secure and safe business. 

Happy Anniversary EMV!

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