May 13, 2015
After years of build-up, we are finally entering the home stretch for EMV deployment in the US. Yet, the overwhelming consensus is that the industry is still not ready for EMV. By most estimates, only 30-50% of merchants in total—and a far lower number of small businesses—are setup to meet the deadline. Among issuers, experts estimate that less than 50% of cards will be EMV-enabled by EOY, and again, the number is far lower among small issuers.
Digging into the reasons behind these low numbers, it seems that the biggest challenge to EMV is confusion. During a recent EMW webinar attended by small and mid-sized banks, 33% said they had not started on EMV deployment and another 40% said they had started their EMV project but were not far enough along in the process to deploy cards. When asked why, almost 40% cited market uncertainty as the primary factor.
Looking at the recent articles on the topic, it’s no wonder folks are confused. Opinions on EMV range from those who swear that EMV is the answer to our fraud worries, to those stating that the way in which the US is deploying EMV (without a PIN) is a joke, to those who say we should skip EMV altogether and leapfrog to new technologies like tokenization or perhaps bitcoins.
So what is the real story? Well, four years ago when the EMV liability shifts were first announced, my former employer asked me and a few colleagues to educate the industry on EMV. Collectively, we spoke to thousands of individuals representing hundreds of issuers, merchants and processers, and in the process we figured out how to distill the complexity of EMV into a handful of fairly simple messages. With all the confusion that remains as we approach the first key dates for EMV deployment in the US, perhaps sharing those messages again will prove helpful.
1. EMV helps stop fraud
Specifically, EMV stops point-of-sale counterfeit frauds related to data breaches. It does this by introducing dynamic data specific to the chip into the transaction, which in turn makes each payment unique. Without access to the chip, stolen card numbers from a breach become useless as there is not enough information to recreate an EMV transaction.
2. Despite being over a decade old, EMV is still a valid technology
Chip-based payments are a big step forward from magnetic stripe payments. In addition to reducing fraud, they enable innovation by putting the power of a processing chip at the POS. Apple Pay is one example in which a chip is used to create tokenized payments and leverage a fair amount of the EMV specification in the process.
3. October, 2015 is the beginning, not the end
The October liability shifts are the first steps on a long journey to improve payments in the US. Following closely, ATM liability shifts will be starting in 2016 proceeded by a liability shift for gas pump purchases in 2017.
4. Don’t be late
While there is little benefit to being a first mover with EMV, experience in other markets shows that being late can be a big problem. The combination of liability shift exposure and fraud migration to the path of least resistance will create financial hardships for laggards.
5. Fast industry adoption is the key to a strong ROI
Reducing fraud means replacing magnetic stripe payments. The faster the industry adopts the technology, the better the ROI for everyone.
6. Success requires a coordinated education effort
Using EMV to make a payment is different than using a magnetic stripe and will cause consumer confusion. A rapid, successful deployment requires the industry to provide a consistent message to consumers, cashiers and everyone else who will use EMV so that they are all on the same page.
7. EMV is not the silver bullet
While EMV will mitigate point-of-sale counterfeit fraud from data breaches, it will also drive fraudsters to look for new opportunities. These will pop up in places such as card-not-present, ATM and online banking transactions. The power of having a chip involved with the payment can help with all of these, but deterring fraud will require ongoing development and advancement by the industry.
In summary, EMV is an effective tool in the battle against fraud. Additionally, moving from a magnetic stripe payment ecosystem to a chip ecosystem enables a whole new set of payment capabilities. Rather than sitting on the sidelines doing nothing—and letting fraud continue to grow in the US—those not engaged in EMV need to start efforts to get on board.