Brace yourselves: EMV is here
When I think about what's happening in the payments industry this week, a scene from the 2001 biopic about Muhammad Ali comes to mind.
Ali, portrayed by Will Smith, walks into a makeshift training room in Zaire just after George Foreman finishes speaking to the media about the duo's heavyweight championship boxing match billed as the "Rumble in the Jungle."
Not thinking anything of it, Ali makes his way to a pair of bongos in the room, slaps them to a catchy beat, and yells: "The champ is here!" He does this several times as the current champ in Foreman leaves the room.
Well, folks, EMV is here in the U.S., and its arrival comes to us with some controversy, which is something Ali stirred up with his words before, during and after his multiple title runs.
EMV's entrance into the payments and retail markets in the U.S. means a lot of different things, so I thought it would be a good idea to briefly examine some of them.
Better card security
I don't need to sit here and rehash the reason why EMV is in the U.S., which is the last major developed country to adopt the technology.
The card networks announced the EMV shift in 2012 partly because their partner banks (in Visa and MasterCard's case) were tired of picking up the tab for fraud conducted with counterfeit cards used at the physical point of sale. Now, it's up to merchants to have the necessary equipment to accept the 1.2 billion credit and debit cards in circulation in the U.S. that will eventually feature chip technology. If fraud occurs at a merchant without a chip card reader, they are now responsible for the costs associated with that incident.
But the networks' plan hasn't been without some controversy.
Earlier this year, Wal-Mart payments guru Mike Cook called the transition a joke, mostly because the card brands insist on chip-and-signature to verify transactions instead of the more secure chip-and-PIN method, which is the standard in most countries including Canada and the U.K.
Another emerging issue is that many merchants will not be ready to meet the Oct. 1 deadline. The Food Marketing Institute, a retailer trade association, earlier this year sent a letter to the card brands asking them to delay the deadline into 2016.
No such thing will happen, and that appears to be somewhat OK on the surface. Most payments industry experts expect the transition to be a long one.
"In the small business market, our sense is that they're behind where Level 1 and Level 2 [merchants] are," David Riddiford, president at point-of-sale provider Apriva, told Mobile Payments Today in a recent interview. "I think your average small businessperson will have options at the time of the liability shift to be EMV compliant, but not maybe the robust set of solutions that Level 1 enjoys.
"I think it's going to take 12 to 24 months for that entire Level 4 market to be fully compliant with the EMV shift."
In the meantime, the card brands and other payments services providers are developing and deploying additional security measures. As we've heard many times before, EMV is not the silver bullet to prevent fraud. While chip cards are much more difficult to counterfeit, something such as the Target breach would've happened anyway because fraudsters used a backdoor in the retailer's system to steal sensitive card information.
Developments such as biometrics, tokenization, two-factor authentication and more secure backend systems all play a role in enhancing overall data security. Retailers also will need to find a way to deal with increased online fraud as more criminals migrate to the Internet to conduct fraudulent card transactions with stolen card data.
Mobile payments and mPOS
You'd be hard pressed to find an executive in the payments industry who doesn't believe that EMV migration in the U.S. will help make NFC mobile payments more mainstream, and it will happen for a couple of reasons.
Firstly, companies such as Ingenico and Verifone already have deployed thousands of EMV-enabled POS terminals and the majority of those readers are equipped with contactless technology.
Secondly, almost every single mobile point-of-sale provider has deployed new hardware that not only accepts chip cards, but has contactless capabilities as well. Everyone from Whole Foods to the local farmers market has the ability and the option to accept services such as Android Pay and Apple Pay.
And finally, proximity mobile payments could soon take off in the U.S. because of the EMV transaction process itself.
I was in Target over the weekend and conducted my first chip card transaction. It wasn't a smooth experience. The amount of time it takes the POS terminal to read the chip is much longer than a card swipe. Will that extra time be enough to make consumers tap and pay more with their smartphones?
"It will be interesting to see if [the chip card process] increases the friction, or at least how the consumers perceives the friction, when making a card payment and how it could be easier to use a mobile wallet or any other form of contactless payment going forward," Riddiford said.
Education for consumers and merchants
The EMV transaction process does bring up the question of whether consumers are aware of the shift happening in the U.S.
Multiple surveys over the last few months have found that consumers are receiving chip cards in the mail, but they have no idea why. However, mainstream media awareness has picked up in the last month, and the card brands have increased chip card awareness campaigns over this period as well.
Still, the transition will not be a smooth one.
At Networld Media Group's recent CONNECT Mobile Innovation Summit, at least one executive from a fast casual restaurant noted that EMV transactions took "several" more minutes than a card swipe because consumers were unware how the process worked. He worried how that would play out during lunchtime once more chip cards are in circulation.
That's a situation where employee education will be critical.
"I do think there's an education process that needs to happen for not only the consumer, but you also think about the store employees," Michele Dupré, head of Verizon Enterprise Solutions retail and distribution practices, told Mobile Payments Today in a recent interview. "There is a bridge that needs to be built for that to be successful. It’s not like [EMV] is something that was put on them in the last 30 days. This is something that they had plenty of time to plan for."
And the planning will not stop on Oct. 1.
Banks will continue to issue chip cards well into 2016, and maybe into 2017. Financial institutions and independent deployers still have until next October to make their ATMs EMV compliant for MasterCard transactions, and until October 2017 for Visa transactions.
And operators of automated fuel dispensers have until 2017 to become EMV compliant for both MasterCard and Visa.
EMV is here, but a complete shift is far from complete.
Will Hernandez Will Hernandez has 14 years of experience ranging from newspapers to wire services and trade publications. Before becoming Editor of MobilePaymentsToday.com, he spent two years as the content manager for PaymentsJournal.com, a leading payments industry news aggregator and information hub published by Mercator Advisory Group. Will spent four years covering the payments industry as an associate editor for multiple publications in SourceMedia's Payments Group based in Chicago.