The day of the EMV liability shift for retailers has officially arrived.
Unfortunately, the credit card industry's self-imposed deadline -- announced more than two years ago -- has not been met with overwhelming success, as most payment cards and point-of-sale (POS) terminals have not yet been updated.
Whereas it was just yesterday that merchants and card issuers split the liability for credit card fraud, with the flip of a calendar page, that liability today is laid on the one that has the least secure technology in place. For example, if the bank did not issue a consumer a chip-enabled credit card to use on an EMV-enabled terminal, the bank is stuck with the bill and the retailer is off the hook. However, if the retailer does not have an updated POS terminal to read the consumer's chip-enabled card, it would have to pick up the tab. If both the card issuer and terminal are updated and fraud occurs, the issuer is liable.
While a magnetic strip card, now a decades-old technology, will continue to work at retailers regardless of the POS terminal in place, it will not offer the enhanced security against counterfeiting -- which reportedly accounts for 37% of all credit card fraud in the U.S. -- that EMV chip cards offer.
Short for EuroPay, MasterCard and Visa, EMV is an open standard for chip card payments. EMV-enabled cards contain an embedded microprocessor that provides the strong transaction security features magnetic strip cards lack. The October 2015 date applies only to retailers; the shift for ATMs occurs October 2016 while the shift for gas stations isn't until October 2017.
The U.S. joins 80 other countries that currently use some form of EMV, many of them for years, if not a decade.
"The U.S. is the last G-20 country on the planet that isn't using EMV cards," said Julie Conroy, fraud analyst at Aite Group LLC, a Boston-based financial services research firm.
EMVCo LLC, a consortium including Visa, MasterCard and American Express, among others, estimated EMV adoption in the U.S. peaked at 7.4% last year as opposed to 83.5% in Europe Zone 1 countries and 59.5% in Canada, Latin America and the Caribbean.
The Oct. 2015 liability shift deadline has seen a bit of an uptick from number, but the current state of EMV is still bleak.
According to research by The Strawhecker Group, only 27% of U.S. merchants are able to process chip-enabled cards, though it expects that number to increase to 90% by the end of 2017.
Michael Grillo, director of solution marketing at ACI Worldwide Inc., said only a quarter of large merchants are ready to accept EMV-enabled payments. The outlook for small businesses isn't any better. A Software Advice Inc. report found only 22% of small businesses have EMV in place, although the number is up from the 11% that had it enabled in 2014.
Many retailers are blaming costs as a hindrance; reports estimated the average terminal cost to be anywhere from $200 to $600, with some calculating costs of up to $2,000 per terminal.
However, retailers are not the only ones to blame, banks and card issuers are not holding up their end of the EMV liability shift bargain either.
EMVCo concluded there are 1.2 billion payment cards in the U.S., and a September 2015 CreditCards.com survey found six out of 10 respondents didn't have their chip-enabled cards. While low, the 40% respondents that said they did have the EMV card is up from the 31% reported in January of this year.
Similarly, a September 2015 ACI Worldwide study found 59% of consumers hadn't gotten new cards, and 67% had not even received information from their credit card issuer or bank explaining what EMV is and how it will affect them.
Many banks are citing increased costs as well, saying chipped cards can cost up to $4 each, while its non-chipped magnetic strip counterpart only costs $.15 each.
The U.S. falls short of prior estimates that 70% of all U.S. cards and 41% of all debit cards would be enabled by the end of 2015.
However, according to Visa's VP of Risk Products Stephanie Ericksen, it will take several years for retailers and card issuers to achieve the targets set by the EMV initiative. From other countries' experience, Ericksen said, it can take two to three years after the liability shift date to reach the point of 60 or 70% of transactions to be completed by chip-enabled cards and terminals, and perhaps as long again to reach a 90% transaction rate.
Gartner analyst Avivah Litan discusses EMV and its effect on enterprises