Timing Is Crucial on EMV ‘Chip’ Cards


Think about the first magician to try to convince audiences he could saw his assistant in half. He may have known he had to do the trick to keep his fans from turning to other performers who might offer more excitement. He may have considered every possibility, perfected every move, and felt confident of a safe outcome that would please and thrill his audience. But he still may have been afraid to look in the box when he was through.

Pawnbrokers — along with financial institutions and other players in the credit and debit card game – find themselves in a similar position as they decide when to start accepting the EMV-compliant credit and debit cards that are the standard in Europe and other parts of the world. Rather than simply relying on an information-storing magnetic stripe, these cards include a microprocessor chip protected by various security measures. The cards are further protected by use of either a PIN or a signature.

The move to EMV cards must be made, both to retain customers and to benefit from the carrots that are being dangled by the card giants. But if the timing isn’t right, it may create a costly mess.

EMV, in a nutshell, is an open, industry-wide specification developed by Europay, MasterCard and Visa, owners of EMVCo — the first letters of each company make up the name — which supports smart card, terminal and processing interoperability. An EMV-compliant card has a microprocessor, or “chip,” embedded. Since the microchip is encrypted, it’s tough to counterfeit.

The rest of the world — especially European countries — have moved more rapidly to EMV for a number of reasons, prominently their use of offline processing. Today there are more than 1.5 billion EMV-compliant chip cards and 18.7 million point-of-sale devices in use worldwide.

In the United States, online processing of transactions meant there has been little interest in chip cards. That changed as fraudsters from all over the world, stymied in other countries, began to concentrate on the U.S.

Aite Group says card fraud cost the U.S. card payments industry approximately $8.6 billion in 2010. As financial institutions have seen many sources of income dry up, the cost of fraud became more difficult to absorb, and they looked for new solutions.

At the same time, demand for chip cards began to develop among international travelers. That may seem like a minor concern, but as long ago as 2008, the payment card industry lost out on nearly $4 billion in charge volume and $78.8 million in interchange fees from travelers who couldn’t use their U.S.-issued cards abroad, according to the Aite Group.

Not An Option

Whether fraud and member demand are major or minor concerns, embracing chip cards is no longer truly an option. That decision effectively was made for pawnbrokers and other merchants when Visa announced EMV timelines on Oct. 1, 2012.

Although the card giants use the term “roadmap,” as some merchants and financial institutions move toward EMV, it seems inevitable all others will, eventually, follow. The question is whether to act sooner or later. And if later, how much later?

The card giants are gently pushing the U.S. industry toward EMV. As of Oct. 1, 2012, Visa declared merchants exempt from payment card industry reporting if they process 75 percent of their Visa transactions on EMV-enabled terminals. It also issued other deadlines:
• By April 13, 2012, merchant acquirer processors (banks that provide card services to retailers) must certify for and accept Visa EMV chip contact and contactless transactions.
• By Oct. 1, 2015, liability for counterfeit POS fraud will shift to the party that didn’t enable a possible EMV transaction (automated fuel dispensers get an additional two years added to the deadline).

MasterCard, American Express and Discover quickly jumped on board with Visa.

There’s other moves that don’t directly affect merchants, but play an overall role. For instance, MasterCard, unlike Visa, also addressed ATMs: It set April 19, 2013, as the deadline for a liability shift for inter-regional ATM Maestro transactions at U.S.

ATMs. ATM acquirers — in ATM networks, the financial institution that dispenses the cash, collecting a transaction fee from the card-issuing bank — will assume counterfeit fraud-related liability if a non-U.S.-issued EMV card is used at a non-EMV-enabled ATM. This won’t apply to U.S.-issued cards accepted at U.S. ATMs.

October 2016 will see the liability shift applied to all MasterCard-branded products across all transactions initiated at U.S. ATMs.

Why Wait?

With all this persuasion going on, why not jump right in? It’s not that simple.

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