There seems to be a pre-occupation in the media with forecasts of the percentage of EMV-compatible cards issued and merchants ready for EMV transactions when the liability shift date occurs in the USA on October 1, 2015. The underlying assumptions seem to suggest that if we don't have near 100% cards issued and merchant participation that the whole EMV migration is somehow pointless. This is so misguided that it is hard to know where to start.
I have seen projections as high as 70% of cards issued will be EMV-ready by October and perhaps as high as 60% or as low as 20% of merchant terminals will be EMV enabled in the USA. Certainly, the former seems higher than is realistic. Historically, as EMV has rolled out around the world, first year adoption rates have been approximately 40% of cards issued. This has been quite consistent from Asia to Europe to Latin America. The USA would expect to follow this kind of historical trend and I don't think there is any particular new driver or market dynamic to change it substantially from what we have experienced elsewhere in the world. Currently, I think the major card brands expect a 40% - 50% range of cards issued to be EMV-capable by the liability shift date.
With merchants, the decisions for EMV compliance are much more complex. Ultimately, they must decide whether the increased exposure to fraud loss outweighs the cost to be in compliance. Perhaps they have a relatively new POS system that has not yet reached a point of replacement. Perhaps the merchant bank or processor owns the terminal at a merchant’s point-of-sale and that entity has not yet decided to replace or activate EMV capability for a variety of reasons, not the least of which is the EMV network certification process. Other back office structural changes may also be in consideration. All of these can affect the eventual timing for 100% EMV payment system compliance between issuers and merchants that we are striving to achieve.
For example, Asia, which was the first region to adopt EMV technology, is still only about 80% compliant to EMV after initially rolling out about 13 years ago. These kinds of changes just take time to get all participants in the payment system to fully adopt. Remember, these liability shifts are not mandates. Every Issuer, merchant, acquirer and processor can make their own decisions about what makes most fiscal and operational sense for their business. For smaller card issuers (e.g. community banks, regional banks, credit unions) and SMB merchants, it may be some time before they see the value of converting their cardholder base or merchant POS terminals to EMV.
Another way to view this transition to EMV in the USA is to consider the percentage of “chip on chip” transactions – that is, an EMV-compliant card presented to an EMV-enabled POS terminal. While I expect that we will see historical adoption rates in the USA compared to the rest of the world for cards issued and POS terminals enabled, the impact of EMV implementation will be felt when there is a high percentage of these transactions at POS. If the big merchant chains are EMV enabled at the POS and the major card issuers are issuing EMV cards, a high percentage of transactions will result as chip on chip. Counterfeit card fraud at the point-of-sale will decline significantly, even though the penetration of EMV-compliant cards and equipment is not has high as some are predicting at the EMV liability shift date. With this degree of EMV penetration achieved, the USA market will be well positioned to layer on additional security features like stronger cardholder authentication (biometrics?) and tokenization.
To learn more about EMV, its technology and its application, before the October, 2015, US EMV liability shift date, check out Prime Factors’ EMV education series of webinars, available for on-demand replay…click on the first image for EMV Basics, and on the second image for EMV Advanced 1: Online Transaction Lifecycle.