Editor’s note: This is part of an ongoing series of blog posts that will address the questions of Why, When, Who, What and How as they relate to the EMV chip card migration in the United States. Tweet using the hashtag #AskOT if you have questions for our experts. Or submit your question to Ask OT here.
Bringing the EMV standard to the United States isn’t a zero sum game where someone loses in order for someone else to win. Nearly everyone benefits from the enhanced security of chip card transactions. Exactly who does that include? Let’s take a look.
Merchants benefit because EMV protects them from card fraud. For small or medium-sized retailers or restaurant owners, a single breach of customers’ card data can cost enough to bankrupt the business. Even for the retailers big enough to withstand the shock of a breach, there’s a loss of trust among their clientele. Heading off those problems most certainly constitutes a win.
And merchants have nothing to fear from the October liability shift that makes them responsible for card fraud that EMV could have prevented. As long as retailers process chip cards as EMV transactions, they’re cleared of liability.
The card-issuing banks themselves also win from the switch to EMV. The liability shift to retailers absolves them from responsibility for fraud losses that EMV could have prevented. It’s a big win for them that they no longer have to suffer losses card fraud.
Payments terminal makers win because they can manufacture hardware and write new software compatible with the EMV standard. Card issuers may see transaction volume rise as the public’s confidence in cards increases. Acquirers can profit from the sale or leasing or new terminals and by becoming trusted advisors to their merchants as they guide the store-owners through the transition.
And who else wins? The winners include everyone who belongs to the overwhelmingly large majority of Americans who use cards for transactions. Cardholders can rest assured that EMV is protecting their data.
But the “who” of EMV doesn’t end there. Who, for example, developed the standard? It came about through the efforts of three card networks: Europay, MasterCard and Visa. Representatives of those brands sat down in a meeting room in Chicago late in 1993 and agreed to work together to develop the EMV Integrated Circuit Card Specification for Payments Systems, accomplishing that goal by 1996.
Who decides how a country will implement EMV and the timing of the deployment of cards and terminals comes down to the nature of political and competitive climate of each country. Some chose authoritarian measures, others relied on central banks and a few succeeded with friendly persuasion. The stakeholders responsible for defining the implementation of EMV typically agreed to the following:
- When the networks and acquirers would be ready to accept an EMV-enriched transaction
- What date the liability would shift to the party who was not securing the transaction with either a chip on the card or an EMV-enabled terminal on the counter.
- If the market would embrace Signature or PIN.
- How to manage a pilot test to allow for interoperability testing and the ability to test cardholder communications and merchant training.
- How to address questions about technical details surrounding the willingness of the market to support fallback to magnetic stripe and the ability to allow consumers to bypass PIN entry.
- Whether to incent merchants to buy EMV-compliant terminals ahead of the natural end of life of existing terminals.
Here in the U.S.A., Visa started the conversation in August 2011 when they published a roadmap. By June 2012, MasterCard, American Express and Discover had followed suit, agreeing to a similar timeline. The card networks formed the EMV Migration Forum to share ideas and attempt to cooperate. The U.S. needed the forum, the networks said, because of the large number of financial institution in the U.S., the litigious nature of the market and lack of agreement on the value of PIN.
Let’s also address the question of who has to learn about EMV. Just about everyone. That includes the chairman of a bank attending a cocktail party whose friends ask about that thing on the left side of the card the bank just sent. Then there’s the cardholder, who’s asked to “insert” or dip the chip card into the terminal. The clerk, behind the cash register has to learn to explain dipping, as opposed to swiping.
So who loses in the EMV transition? Merchants have to bear most of the expense of replacing older terminals with new ones that accept EMV cards. At least they can take solace in the fact that terminals don’t last forever anyway. Besides, some acquirers offer free – or at least low-cost terminals – that ease the burden.
One group does lose big with EMV, however. The criminals who prey upon payment system by hacking into computers will suffer a spectacular setback with the introduction of EMV. But there’s no need to feel sorry for them.
Philip Andreae, Vice President, Field Marketing, Payment, North America at Oberthur Technologies
At Oberthur Technologies, Philip Andreae, Vice President, Field Marketing, Financial Services Institutions, North America, provides clients an in-depth understanding of EMV and what it takes to introduce EMV in the U.S. Over the last 20-plus years, Philip has been actively involved in the payment industry including driving the creation of the consortium that developed the EMV specification.