File illustration
EMV cards, also known as chip-and-PIN cards, were supposed to introduce a new layer of security into debit and credit card purchases, but more than a year after the liability shift, consumers complain about processing times, EMV terminals have slots taped over and some consumers have yet to even receive the new cards. What went wrong?
It depends on whom you ask. By many standards, the EMV rollout is proceeding exactly as it was expected to. This was never going to be an overnight process, and even overseas, it took about five years for the European market to be fully saturated, some say.
“The rollout was generally good,” said Brian Riley, director of credit advisory services at Mercator Advisory Group. “One hundred percent of the large banks are in compliance and as you work your way down the food chain, it’s slower, but generally speaking, the cards are out for credit cards.”
Just last month, Mastercard announced that 88 percent of its U.S. consumer credit cards had chips, representing a 105 percent increase since the liability shift last year, and that it now had 2 million chip active merchants on its network, about 33 percent of all merchants in the U.S. The issuer also estimated that about nine in 10 U.S. consumers now regularly use chip cards.
Visa unveiled similar numbers, boasting of more than 363 million chip-enabled Visa credit cards and more than 1.46 million chip-active merchants. Visa also said that chip-ready merchants saw a 47 percent decline in counterfeit fraud.
Debit was a different story, thanks in no small part to the Durbin Amendment, which required that issuers offer merchants at least two independent debit networks for processing. But even with that kink mostly now resolved, there’s still another major problem with getting EMV out the door.
“The bigger problem is not with the issuance of cards; only approximately 30 percent of all merchants are EMV ready, and therein lies the trouble,” said Gary Smythe, president of the Catalyst Card Co. “If you’re a card issuer right now and you know that only 30 percent of the merchants are ready, why would you spend the money?”
Smythe doesn’t blame the merchants for that predicament, though. He said some of the fault is with Visa and Mastercard – the issuers are still working through the backlog of merchants waiting to be certified to accept EMV. Many merchants have upgraded the hardware, but if you’ve walked into your local supermarket lately, it’s pretty likely the place still isn’t ready to accept the chip.
Thad Peterson, a senior analyst with Aite Group, said that a great deal of mid-sized merchants rely on third-party software providers who have also struggled to work through a backlog of merchants waiting to be EMV certified since well before the Oct. 1, 2015, liability shift.
The Future Of Payments Is Digital
Although chip-and-PIN has helped to significantly reduce fraud at the point of sale, it doesn’t work if the consumer can’t use it. Gas pumps, for instance, largely still rely on the magnetic stripe and have recently become a favorite target for skimming devices.
And fraud online is “exploding,” in Smythe’s words.
With rollout happening so gradually, could EMV actually be leapfrogged by other, newer payments technologies?
EMV isn’t even the shiniest widget in the payments space anymore. Engineers have developed contactless cards that contain a tiny antenna and don’t need to be run through or inserted into a machine to complete a payment.
Smythe described another new technology, a potential solution to card-not-present fraud, called dynamic CVV, which constantly changes the three-digit security code printed on the back of the card.
There’s just one big hang up.
“The technology is there, but it’s expensive and the banks will never pay for it,” Smythe said. “The technology is there, it’s sitting, it’s waiting, it’s all ready to go. … And it’s not going anywhere, at least not for a while.”
One hypothesis posits that mobile wallets, like those offered by Apple and Samsung, are in a prime position to capture a larger slice of the payments market.
“If you watch Apple, they’re all announcing the ability to do online payments with Apple Pay or Samsung Pay, and they offer the combination of biometric plus a device plus EMV,” Peterson said. “I think that’s where it’s going to go. I think we’ll see a dramatic growth in mobile wallet payments online.”
EMV’s contribution to the payment space may ultimately not be the chip itself, but rather that it has introduced tokenization as a means of securing consumers’ payment information against predators.
“The big deal about EMV is it’s more than just putting a chip on a card,” Riley said. “It’s really pushing the whole industry towards a more digital play on payments.”
