The U.S. payments industry’s transition to EMV chip cards has produced a number of side issues, but few may be more pressing for card-not-present merchants than the failed authorizations caused by the ongoing replacement of as many as 1.6 billion credit and debit cards.
The new EMV cards carry new expiration dates and three-digit verification codes, and in the case of debit cards they likely carry new account numbers, as well. Vantiv Inc., a major transaction processor, estimates that some 700 million EMV credit cards have already been issued, while banks are only now starting to replace some 500 million debit cards in circulation.
The impact on e-commerce merchants, particularly those that rely on subscription and recurring-payment billing, came into relief as early as January when Internet TV giant Netflix Inc. revealed in an earnings call that its results had been hurt by failed authorizations caused by cards on file that had been replaced by EMV cards with different credentials.
Nobody knows exactly how many of these declines are taking place, but Vantiv’s Sunil Dixit, a senior product manager who works on the problem, estimates that the likelihood that any given card has been replaced is now five times greater than it was a year ago. EMV is intended to make for a more secure point of sale, but “as with every great change like [the move to EMV], there are unintended consequences,” Dixit tells Digital Transactions News.
For about five years, Visa Inc., MasterCard Inc., and Discover Financial Services have offered fee-based account-updater services that at first responded to widespread card reissuance prompted by a rash of data breaches. The services take in new credentials when issuers replace cards and give merchants or their processors access to the changes.
Now these services are being harnessed to help merchants with EMV replacement. Starting in October, issuers will be required to participate in Visa’s service, a move Dixit applauds. So far, Vantiv estimates that banks accounting for about 70% of total card transactions are enrolled, but Dixit would like to see that number go much higher. “We need to pressure banks to participate,” he says. Even with Visa’s mandate, he points out that full participation could take time as financial institutions wrestle with technical issues.
In the meantime, processors like Vantiv are becoming more vocal about the problem in the hope that more issuers will participate voluntarily. The problem will only grow more critical now that banks are starting to re-issue more debit cards with EMV chips. Debit cards, Dixit points out, are likely to carry new account numbers as well as reset expiration dates, making it even more likely that card-on-file authorizations will fail. “If you’re debit heavy, you’d better be using [an] account-updater service,” he warns issuers.
Vantiv has quantified the benefit of the updater services. “On average, we see a 3% to 6% gross uplift in recurring revenue annually by using the service,” Dixit says. Also, he estimates, about 30% of all authorization declines in e-commerce could be prevented with account updates. Preventable declines cost merchants business but also deprive issuers of interchange income, he points out.