After years of buildup, we are finally entering the home stretch for EMV deployment in the U.S. Yet, the overwhelming consensus is that the industry is still not ready for EMV. By most estimates, only 30-50% of merchants in total—and a far lower number of small businesses—are set up to meet the deadline. Among issuers, experts estimate that less than 50% of cards will be EMV enabled by EOY, and again, the number is far lower among small issuers, like credit unions.
Digging into the reasons behind these low numbers, it seems that the biggest challenge to EMV is confusion. During a recent webinar attended by small and mid-sized financial institutions 33% said they had not started on EMV deployment, and another 40% said they had started their EMV project but were not far enough along in the process to deploy cards. When asked why, almost 40% cited “market uncertainty“ as the primary factor.
Looking at the recent articles on the topic, it’s no wonder folks are confused. Opinions on EMV range from those who swear that EMV is the answer to our fraud worries, to those stating that the way in which the U.S. is deploying EMV (without a PIN) is a joke, to those who say we should skip EMV all together and leapfrog to new technologies like tokenization or perhaps Bitcoins.
So what is the real story? Well, four years ago when the EMV liability shifts were first announced, my former employer asked me and a few colleagues to educate the industry on EMV. Collectively, we spoke to thousands of individuals representing hundreds of issuers, merchants and processers, and in the process we figured out how to distill the complexity of EMV into a handful of fairly simple messages. With all the confusion that remains as we approach the deadline for EMV deployment in the U.S., perhaps sharing those messages again will prove helpful.
- EMV helps stop fraud. Specifically, EMV stops point-of-sale counterfeit fraud related to data breaches. It does this by introducing dynamic data—specific to the chip—into the transaction, which makes each payment unique. Without access to the chip, stolen card numbers from a breach become useless as there is not enough information to recreate an EMV transaction.
- Despite being over a decade old, EMV is still a valid technology. Chip-based payments are a big step forward from magnetic stripe payments. In addition to reducing fraud, they enable innovation by putting the power of a processing chip at the POS. One example of this is Apple Pay, which uses a chip to create tokenized payments and leverages a fair amount of the EMV specification in the process.
- October 2015 is the beginning, not the end. The October liability shifts are the first steps on a long journey to improve payments in the U.S. Following closely will be ATM liability shifts starting in 2016 and then a liability shift for gas pump purchases in 2017.
- Don’t be late. While there is little benefit to being a first mover with EMV, experience in other markets shows that being late can be a big problem. The combination of liability shift exposure and fraud migration to the path of least resistance will create financial hardships for laggards.
- Fast industry adoption is the key to a strong ROI. Reducing fraud means replacing magnetic stripe payments. The faster the industry adopts the technology, the better the ROI for everyone.
- Success requires a coordinated education effort. Using EMV to make a payment is different than using mag-stripe and will cause consumer confusion. A rapid, successful deployment requires the industry to provide a consistent message to consumers, cashiers and everyone else who will use EMV so that they are all on the same page. Educating members will be key for credit unions.
- EMV is not the silver bullet. While EMV will mitigate point-of-sale counterfeit fraud from data breaches, it will also drive fraudsters to look for new opportunities. These will pop up in such places as Card Not Present, ATM and online banking transactions. The power of having a chip in the cards can help with all of these, but deterring fraud will require ongoing development and advancement by the industry.
In summary, EMV is an effective tool in the battle against fraud. Additionally, moving from a mag-stripe payment ecosystem to a chip ecosystem enables a whole new set of payment capabilities. Rather than sitting on the sidelines doing nothing—and letting fraud continue to grow in the U.S.—credit unions not engaged in EMV need to start efforts to get on board.