Is it Time You Revisited the Business Case for EMV?
The business case for implementing EMV technology has changed for the better (in terms of their significance for the bottom line of the business case) over the last couple of years:
- Direct cost of fraud in the U.S. is definitely on the rise. Additionally, the industry needs to fully acknowledge that cost of fraud is not limited to the direct net fraud losses; fraud management expenses contribute rather substantially to the overall fraud cost. Visa suggests that indirect fraud costs are “at least equal to direct fraud losses, and can often be much higher” [Visa2009]. Visa also claims that “opportunity costs, which include the behaviour of cardholders subsequent to experiencing fraud, vary considerably — but can easily account for more than 15 per cent of total fraud costs.”
- On the positive side for the US the cost of chip cards has decreased considerably over the last couple of years as a result of growing card production capacities, maturing card manufacturing technology and the decreasing prices of the integrated circuit chips. Certainly, the financial industry has benefitted in this regard from the fact that EMV chip technology is very similar to the technology supporting billions of mobile telephones.
- Another positive for the US merchants is that the cost of payment and POS devices has come down significantly. Furthermore, a substantial proportion of POS devices in the U.S. market already contain chip-reading hardware capabilities onto which EMV software can be downloaded. This situation improves with every new EMV capable device shipped as part of the standard POS device maintenance cycle.
- Most of the big issuers, acquirers and processors in the U.S. are already issuing chip cards and/or are acquiring EMV transactions based on the fact that they are operating in EMV territory abroad and have had to adapt as a result. They are at least familiar in principle with the impact of migrating to EMV, and most of them have modified at the very least their international issuing and back end systems to integrate EMV. This leaves them with a very large problem of making the same change to the domestic systems and the internal card and risk systems that in many cases have been running for years and are outdated.
The following table shows the value of funds spent in the US by individuals from other countries using EMV cards and the funds that US citizens spend outside the country not having EMV cards. Just imagine if the international travellers were not unable to use their EMV cards in the US if the European banks actually remove the magnetic stripe data from the EMV cards forcing visitors to only use cash as most merchants in the US are unable to process EMV cards. Imagine being on vacation outside the US and not be able to use your magnetic stripe card.
American Express by April 2013, processors must be able to support American Express EMV chip-based contact, contactless and mobile transactions.
MasterCard indicates that beginning in October 2016; a liability shift hierarchy will be introduced for all MasterCard-branded products across all ATM transactions in the United States.
Visa has set October 2015 as a deadline for merchants to install EMV payment terminals in stores, and the end of 2017 as the deadline for gas stations featuring pay-at-the-pump terminals to accept EMV payment or assume the liability and cost of disputed credit card transactions.
What can card issuers do now to prepare?
- Assess the equipment and operational requirements, and set up parameters, controls, and procedures that support the issuance of smart cards, and subsequently facilitate the processing of authorizations and transactions initiated by these EMV devices. Issuers should also engage applicable vendors and providers to map out a potential plan. For some issuers, this may mean evaluating the possibility of outsourcing card production currently done in-house.
- Quickly enact an EMV-issuance strategy for cardholders that travel internationally and who are being denied when they use their magnetic stripe payment cards when paying abroad.
- Determine what a chip card implementation strategy would look like to coincide with card reissuance cycles and meet the October 1, 2015 timeline.
- Develop an education plan to help consumers understand smart cards and the benefits.
Will full Implementation of EMV allow you to take advantage of your Chip Cards?