How EMV is going to affect you.
Last week, we attended a NYPAY event listening to a panel of experts discussing EMV and how the implementation of EMV was going. The panel had a mixed of payment/EMV consultants, a representative from MasterCard, and 2 representatives from retailers, namely Ralph Lauren and Boscov Department Store. Here is what we learned.
1. EMV uncertainties lead to confusion.Confused by EMV? You are not alone. Everyone on the panel (and audience) agreed on one thing- CONFUSION. Despite the 2015 EMV mandate, there is no clear standard that has been issued by the card associations. One of the panelist used the analogy of building a house before an impending deadline, but not being given a blueprint of what to build to describe the current EMV confusion. The confusing adds to already burdensome upgrade to EMV in terms of time and cost.
2. Biggest benefit of EMV is the liability shift.When you accept an EMV card in your store and the card turns out to be a cloned card, the issuing bank takes the liability of that fraudulent transaction. However, if a chip enabled card is presented at your store and your POS does not support chip enabled cards, and that card turns out to be a clone, then there would be no liability shift to the issuing bank, and you, the merchant, bear the burden of the the liability. This liability shift does not apply to traditional magnetic stripe cards. So it really comes down to how widely the issuers will adopt EMV (issuing new cards to customers) and how much of your typical customer base will being usign chip enabled cards. Since there is a cost of upgrading to chip-enabled POS, it's cost/benefit analysis. Does it outweigh the risk of liability for taking fraudulent chip-enabled cards?
The 2015 EMV mandate is not really a do-or-die mandate. If I understood the panelists correctly, the 2015 "mandate" is not an absolute requirement. It doesn't mean that you must only accept EMV cards or cease to accept credit card payments altogether. The mandate just means that there will be no liability shift if your POS system does not support chip-enabled cards.
3. Chip & Pin is for Europe, Chip & Signature for the US.EMV can take the form of chip & pin or chip & signature. Europe and Asia have largely adopted chip & pin, but it looks like that US will go the route of chip and signature. Chip & pin is more secure than chip & signature, as we all know that our scribbles are usually accepted as our signature without questions asked. It is unclear how this will affect the liability shifting and what is required of the merchants to make sure the signature is valid to benefit from liability shifting.
4. Expect fraud to shift online.Merchants are fed up with fraud. Although it was a "payment" event, fraud was a central theme in the discussion. The representatives from retailers believe that the card associations are not doing enough to help the merchants to prevent fraud, while the other side touts EMV as its solution to fraud problems.
If history is any indication, we are likely to see mixed results. When the UK instituted EMV, card present (in person) transaction fraud declined. According to a working paper published by the Federal Reserve Bank of Atlanta early last year, the adoption of chip & pin led to the reduction of domestic card-present fraud in the UK. However, the Fed paper points out, the adoption of chip& pin caused "a migration to other types of fraud, namely card-not-present (CNP) fraud and cross-border counterfeit fraud." So with EMV adoption, we are likely to see fraud shifting from offline to online as well as more counterfeit cards used in the US at the POS.