Guest Analysis: Will EMV Succeed in the United States?
Jaimie Yun
July 8, 2014 – If you’ve ever traveled to Europe or Asia and noticed that the credit card machines looked a little different, you’ve already met EMV. The chip card is prevalent in most of the rest of the world (with 99.9% of the European market), and yet, the US is only now starting — slowly at that — to get on board.
Why We Need It
Credit card fraud costs us more than $11 billion in 2012. That number isn’t going down any time soon, at least, not if we continue to use insecure authentication systems. EMV (that’s Europay, MasterCard and Visa, for the uninitiated) uses a cryptographic message for “dynamic authentication” that is considered a more secure form of authentication than the traditional magnetic stripes we’re using now.
That reason alone should be impetus for change across the board, but like anything, change is something people are resistant to. As with many things, authentication is something America hasn’t worried about. After all, twenty years ago, when EMV started appearing in the UK and Japan, we had a solid and secure online infrastructure, and didn’t think we needed to make changes. Fast forward to today, and we’re accounting for nearly half of the entire world’s credit card fraud. Clearly, it’s time for something new.
EMV also offers interoperability with global payments. That means the next time you travel, you won’t have to dig out your Euros to pay for your cappuccino in Italy if your meager American credit card won’t scan on their high-tech machine.
The Cost of EMV
Naturally, with any change comes cost. Because merchant card processing machines have to be replaced with those that read the embedded chips in EMV cards, there will be some expense, both to the merchant processors and to the businesses that buy them. Card readers, which currently cost around $20 for the magnetic stripe readers (volume pricing) will double at the very least, and can cost as much as $100 each if they include a PIN pad.
The fact that the per-transaction cost will rise doesn’t make retailers jump quickly on board either. And yet, it’s a small price to pay to reduce the threat of card fraud, for both consumers and businesses alike.
A Forced Migration
Just like how the move from paper to electronic medical records were mandated a few years ago, so will the shift from magnetic cards to EMV be, thanks to the Payment Networks’ Liability Shift. Businesses have until October of 2015 to move their payment processing systems to EMV.
What this “liability shift” means is that in the case of card fraud, whichever party has the lesser technology will bear the liability. So if a merchant continues to use old mag stripe technology but a customer makes a transaction with a chip card, the merchant will be liable for fraud. On the contrary, if the merchant has the new card reader but a customer’s bank hasn’t yet issued a chip card, the onus is on the bank to bear the responsibility for fraud.
Expect grumbling in the marketplace as the move to EMV takes place over the coming months. But in the end, the improved security and streamlined technology will make the world of commerce a better place and everyone will be happier for it.
[divide] [spacer height=3]Jaimie Yun has more than 15 years experience across financial sectors of public accounting, corporate finance and more. She is on the advisory board of PayDemand.com, a credit card processing marketplace that allows businesses to compare multiple credit card processing rates and get the best offer while remaining anonymous to processors. Connect with Jaimie on Google+ and follow PayDemand on Twitter.
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