September 29, 2016
By Kevin Woodward
No doubt, the U.S. payment card industry’s monumental shift to EMV chip cards is earnestly moving ahead. A year later—Saturday marks the anniversary of the liability shift—some 2 million merchants accept the cards and card brands count millions of chip-enabled cards in use. The United States became the largest EMV chip card market in July. MasterCard Inc. and Visa Inc. announced the chip migration in 2011.
Despite growing consumer and merchant adoption, however, the path ahead for EMV remains littered with ongoing merchant angst, consumer confusion, and complex technical requirements.
MasterCard and Visa, two of the major U.S. card brands, each tout the progress made since the Oct. 1, 2015, liability shift. MasterCard says 2 million merchants accept chip cards and 88% of MasterCard U.S. consumer credit cards have chips. Visa announced Thursday it counts 1.46 million chip-enabled businesses and 363 million chip-enabled Visa cards.
Currently, chip-on-chip transactions make up approximately 30% of Visa’s overall U.S. transaction volume, says Stephanie Ericksen, Visa vice president of risk and authentication products. Visa’s EMV-accepting merchant total, which represents 32% of merchant locations, generates 37% of the payment volume, Ericksen tells Digital Transactions News.
Chip cards appear to be reducing counterfeit card fraud, one of the reasons the technology came to the United States, albeit about 20 years after its global introduction. Counterfeit card fraud decreased 47% in May compared to the same month in 2015, Visa says. MasterCard says that fraud decreased 54% from April 2015 to April 2016.
“Demonstrating the power of EMV and the risk of not adopting, counterfeit card costs rose by 77% at non-chip active merchants in the same timeframe,” says Chiro Aikat, MasterCard senior vice president of product delivery for EMV, in an email to Digital Transactions News.
Other reasons for bringing on EMV technology included aiding mobile payments technology and reducing acceptance issues U.S. travelers faced overseas in chip-enabled markets, Visa said in 2011.
The progress made in the past year is notable, says Michael Moeser, director of payments at Javelin LLC, a Pleasanton, Calif.-based payments consultancy. “When we looked at this originally we saw the issuers were starting to bring the cards out,” Moeser tells Digital Transactions News. “It was a slow but steady process.”
A year ago, when asking a group of consumers if they had a chip card, the number of hands raised in acknowledgement would have been few, he says. Today, most hands would rise.
On the acceptance side, aside from a few bursts of implementation, such as at Target Corp., installation of EMV technology slowed last year as retailers waited out the always-important holiday-shopping season, Moeser says. Then it picked up again.
Now, with the major issues sorted out, merchants, consumers, and the payments industry are contending with ways to fine-tune EMV acceptance.
With as many as 2 million merchants accepting EMV chip cards—out of an estimated 8 million payment-card accepting merchants—many consumers find themselves second guessing which way to pay at point-of-sale terminals, Moeser says. Insert the chip card or swipe it using the magnetic-stripe reader? Consumers may see the EMV card reader taped over or a placard declaring that chip cards are not accepted. “It creates confusion,” he says. “It’s somewhat surprising it was not more thought out. We’re the biggest card market in the world. One might have thought how is this thing going to change the process. I don’t think that was really a consideration.”
One change the card brands made this year to improve the consumer experience was to offer a unique, U.S.-specific EMV protocol that reduced the number of internal steps a transaction must complete. Dubbed Quick Chip and M/Fast Chip by Visa and MasterCard, respectively, the protocol, also offered by American Express Co. and Discover Financial Service, enables consumers to remove their cards from a reader in the middle of the transaction instead of leaving it in for the duration.
“You would have thought the banks and brands would have offered [the expedited EMV protocol] when EMV launched,” Moeser says. “I don’t think they expected this kind of backlash,” referring to consumer and merchant complaints about the pokiness of EMV transactions.
“M/Chip Fast delivers great experiences for consumers and merchants,” says MasterCard’s Aikat. “It is having a positive impact as it is easing fraud costs to merchants, and, simultaneously, consumers can expect to experience speeds closer to the familiar magnetic stripe transactions with the added security of EMV.”
The reason for many of the merchant placards is that merchants are waiting for the POS software to be certified as EMV compliant. Though acquirers, processors, and POS terminal makers had deadlines for EMV compliance in advance of the liability shift, much depended on merchants installing the systems. This created a backlog as each POS device and accompanying software has to be certified, an especially taxing issue for POS software developers who must devote attention to many issues in addition to payments.
To that end, Visa and MasterCard announced programs to hand acquirers more responsibility to either follow the network’s testing procedures or conduct alternative test procedures if they wish.
“We have seen some acquirers move forward,” Ericksen says. “Test-tool vendors have been working with acquirers to enable the self-certification process. It’s something they’re incorporating into the way they do business while they continue to work on the certifications they have in progress.”
A National Retail Federation survey found that 86% of retailers plan to have EMV acceptance fully implemented by the end of 2016. Of those with equipment installed already but not yet in operation, 57% said they are waiting on certifications. Sixty percent of this group had been waiting six months or more.
Friday, Digital Transactions News will examine what’s ahead for EMV, including the liability shifts for ATM transactions and those made at petroleum merchants.
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