By Ray Birch
RANCHO CUCAMONGA Calif.—One year following the EMV liability shift deadline and issuers and merchants have earned decidedly different grades for their progress toward migrating the U.S. to chip cards.
Payments analysts give issuers an “A” while merchants go to the bottom of the class ranking.
In direct contrast from what many predicted last October, issuers are well ahead of merchants in their EMV efforts, with about 85% of FI card bases converted today. Merchants, on the other hand, have about 30% of their terminals accepting chip cards.
CUToday.info’s series marking the one-year anniversary of the EMV liability shift deadline has been looking at what has happened since last October. Among the findings:
- Merchants, issuers and payments networks realized that the speed of the EMV transaction needs to be addressed.
- Waiting to convert the card base and reissuing as cards expire did not spell doom for credit unions.
- Crooks are rushing to make use of their stolen debit card data as EMV closes their window of opportunity.
Best Conversion Strategy?
As the liability shift deadline approached last year, there was debate and concern among credit unions and payments experts as to the best strategy to convert the card base—perform a mass reissue or mail out new chip plastic as cards naturally expire. With the liability shift moving fraud loss costs to the weakest link in the transaction chain, some analysts suggested that if CUs did not convert the card base quickly they could face mounting fraud losses.
Michelle Thornton, CO-OP FS
Michelle Thornton, director of product development at CO-OP Financial Services, said that has not happened.
“We have not seen any definitive increase in fraud for those credit unions that are not fully converted to EMV. The biggest reason, we feel, is that there are still not that may chip-on-chip transactions—chip terminal and chip card,” said Thornton, who noted that only about 30% to 35% of merchants have EMV enabled terminals today.
Merchants, particularly the large stores, would be further along today had they not developed concerns over the slowdown at checkout lines, which has affected customer satisfaction. Experts said that while many big box merchants moved quickly out of the gate last October to convert POS terminals, a number have slowed down flipping the switch to EMV as lines backed up at stores.
Merchants, too, did not foresee the backlog in the terminal certification process that has had a big impact on the number of EMV terminals available today.
Mom-And-Pop Shops
It is interesting, too, sources said, to see how tier three retailers, the mom-and-pop shops, have responded. Expected by many to trail well behind tier one and even tier two stores, the small owners have now—as a percentage of converted terminals—almost caught the major retailers, sources said. Tier two, regional stores, now lag furthest behind.
What did arise from the slowdown at the checkout lines are new methods to pick up EMV card speed, as well as chip card alternatives.
Bill Hardekopf
Quick Chip and M/Chip POS solutions were created by Visa and MasterCard, respectively, to improve the speed of EMV transacting. But while the effect of those programs have yet to be assessed, dual interface chip cards, where consumers can either tap-and-go or dip their plastic, are being ordered by issuers in greater numbers in the last year.
“We are seeing a lot more usage in our portfolio of dual interface EMV cards,” said Chole Casber, product manager at TMG, Des Moines, Iowa. “We are at 65% dual interface across our total portfolio of debit and credit.”
As consumers and retailers complain about the time it takes to dip the EMV card, the dual interface card is faster, said Casber—even faster than Quick Chip and M/Chip.
Tap And Go Faster
Experts have also stated that the slow speed of chip transactions will lead to greater appeal of digital wallets, as tap and go is faster than dipping.
“Since mobile wallet transactions are so much faster, some people—especially Millennials—are using mobile wallets. So mobile wallets seem to have benefitted from frustration that consumers are feeling about the chip cards,” said Bill Hardekopf, CEO of LowCards.com in Birmingham, Ala.
The issue with chip speed, and cost to install the reader, may also impact gas stations, as the liability shift deadline for fuel pumps arrives in 2018.
Art Harper, PSCU
“Exxon recently removed its Speedpass (NFC) service and is accepting Apple Pay at the pump,” said Art Harper, director of solutions consulting at PSCU in St. Petersburg, Fla. “So they are moving to a more mobile environment. I think a question to answer is will some gas stations, as the liability shift deadline nears, move straight to mobile and skip having a slot for a card? This is something to keep our eyes on.”
In the past year there has been a rise in card not present fraud, and fallback fraud, both not unexpected. But what may be surprising to some is the rise in debit card fraud over the past six months.
CNP Fraud Up
Lou Grilli, director of payments strategy at CSCU, Tampa, Fla., told CUToday.info that following the October 2015 liability shift deadline that card not present fraud is up 12%, making it now the largest category of payments fraud.
“That is certainly not unexpected,” said Grilli. “But what is surprising is that data shows that debit card fraud is increasing in the past six months while credit card fraud is decreasing. So fraud is shifting from credit cards to debit.”
Grilli believes the reason for the shift is that crooks, sitting on a “treasure trove” of compromised debit card data, want to use that as quickly as possible before a sizeable percentage of U.S. payments transactions become chip on chip—chip terminal and chip card. Currently, only about 21% of transactions are chip on chip.
“The fraudsters know EMV cards are being issued and POS terminals updated so they are ramping up their fraudulent activity on debit until this window of opportunity closes,” he said.
So what’s ahead? Sources told CUToday.info that merchants will begin converting their POS terminals at a faster clip, with some projecting most stores will be EMV capable by the end of next year.
EMV Usage Climbing
Casber, who is uncertain where merchant readiness will be at the end of 2017, sees EMV usage growing quickly.
“Merchants are lagging. But we see the pace of their POS conversions picking up,” said Casber. “As far as EMV usage, we are seeing dramatic increases now month over month, anywhere from 70% to 120%. This past year has been frustrating from the issuers’ perspective, as we have not seen the EMV usage we expected. I think we will continue to see these 70% to 120% usage increases month over month. However, despite these good signs, how fast the U.S. gets to 80%-90% EMV usage is another question. Based on the numbers we are seeing today, it won’t be that fast, unless we begin to see much greater merchant adoption.”
Articles from the EMV series are below:
- What's Slowed EMV Migration In 2016?
- Demand For Tap-And-Go Chip Cards Growing Post Liability Shift Deadline
- 'Chip-On-Chip' Dips 10% 1 Year Into EMV Shift
- EMV May Drive Up CU Checking Fees
- Why Fraud Is Increasing On This Payments Form