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By adaptive - May 16th, 2016
Susan Kuchinskas examines the hiccups and potential of EMV-enabled credit card transactions. Could m-payments see the biggest benefit?
Visa's release of Quick Chip, a software boost to the process of paying with a chip-enabled credit card, was good news to everyone who's experienced longer wait times thanks to the new security scheme. Anecdotally, chip-card processing can add between eight to 17 seconds to transactions.
The global chip-card standard, formally known as Europay, MasterCard and Visa, or EMV, was created by a consortium called EMVco. It uses an embedded microchip to provide unique data protection when the card is inserted into a chip-card reader. EMVco also developed the initial software that seemed to slow down checkout lines.
Visa did not make an executive available, nor did it respond to the question of why it, instead of EMVco, released a fix. A Visa spokesman said that the Quick Chip specification is available free of charge to merchant acquirers, processors, terminal manufacturers, technology partners, and other networks to provide to merchants. So far, there's no information on how many merchants have implemented it.
Catherine Murchie, MasterCard's senior vice president of North America enterprise solutions, tells Open Mobile Media that there are other factors besides the EMV software itself that could affect transaction time, for example, how the merchant has set up its POS terminal; how it's enabled customer prompts; and whether it has a loyalty program attached to the transactions.
Murchie notes that the payments system in the United States is huge and complex, so the industry could not simply re-use the European version. "We're in middle of the migration. You want to get everything in and then work through the optimization piece," she says.
State of EMV in the US
Credit card issuers have done a great job of getting chip-enabled cards to their customers. CreditCards.com, a consumer-oriented site, recently did a survey of Americans that found 70 percent had received an EMV-enabled card. (Another 15 percent were unsure.)
That latter point is not surprising, according to Matt Schulz, senior analyst at CreditCards.com. "Even though there have been a lot of headlines, there are still a lot that people don't know about the cards," he says.
That's not necessarily the fault of the issuers, he adds. Consumers typically ignore communications from their banks.
Murchie notes that the payments industry did put together a consumer information site, Gochipcards.com, containing resources for both consumers and small businesses. And a MasterCard series of usability studies found that consumers understand how to use the chip card with an average of 1.5 tries.
On the other hand, many of us haven't even had a chance to try dipping the chip.
"Americans are all dressed up with nowhere to go when it comes to these cards," Schultz says. "While three quarters of us have them, only a third of retailers can accept them."
This is despite the fact that, after October 2015, merchants that did not use an EMV-enabled POS terminal became liable for fraudulent transactions.
Merchant uptake lags
In April, Visa released stats on chip-card adoption among consumers and merchants. It found 265 million Visa chip cards in circulation, making the United States the largest chip market in the world. There are also more than one million chip-enabled merchant locations in the U.S, with a total payment volume in March 2016 of $18.4 billion.
That's the glass-half-full view. On the other hand, a survey by The Strawhecker Group (TSG) in January 2016 found that approximately 37 percent of U.S. merchant locations were EMV-ready. Moreover, only 50 percent of merchants expected to be EMV ready by June 2016 and 72 percent expected to be ready by the end of the year.
Many merchants delayed EMV implementation because they didn't want to snarl up holiday shopping. Some were resentful that the industry had set the shift in liability – the stick for merchants to adopt EMV – at such a time.
As Murchie points out, "We have been talking about the migration since 2011. There has to be some point in time."
The Strawhecker Group (TSG), a management consultancy for the payments industry, found that merchant chargebacks have risen as those not using EMV have assumed liability for fraudulent transactions. Overall chargebacks increased 15.3 percent in bankcard dollar volume year over year.
Murchie says it's good that merchants have been forced to become more aware of fraud, citing a Nielsen report that half of all credit card fraud comes from the United States. "One thing that wasn't entirely clear was that for a long time, credit card issuers were eating quite a bit of counterfeit fraud. So what happened during the liability shift was they started to see what that the real fraud rate actually was."
The three hurdles
Jared Drieling, business intelligence manager for TSG, points out that the U.S. market is actually doing well with the rollout, given how large and complex our payment system is. European merchants typically took five to seven years to complete the transition to EMV, he says – even though it's now established there.
With the U.S. market less than a year into its transition and a third of merchants enabled, Drieling says, "In that perspective, we are well ahead of migrations across the globe."
That's not to say that merchants are not facing significant hurdles, according to Drieling. The first was simply acquiring a chip-enabled terminal. It wasn't until right before the shift of liability to merchants that many ordered the new POS terminals, so vendors had a backlog of orders.
Merchants also have to wait for vendors to activate their new EMV terminals. "A lot of key payment stakeholders were not ready. There was the feeling that this will get pushed back again – but that was not the case," he says.
Finally, there's a long queue for testing and certifying the new terminals. Vendors have been prioritizing their largest customers, while the smaller fish have to wait.
"Overall," he says, "there's been a lot of finger pointing."
EMV boosts mobile pay
Ironically, the headwinds on EMV rollout in the United States could goose use of mobile payment, all three experts agreed.
First, many chip terminals are also enabled for NFC. Murchie says, "Contactless payment is a companion to EMV. In those environments where speed is critical, terminals are rolling out with contactless capability as well as EMV."
Second, according to Drieling, mobile wallets let merchants offer better loyalty programs while appealing to younger consumers. They enable consumers to complete a transaction across digital channels, as well as in the store, while letting merchants track behavior and offer location-based marketing.
Finally, the bad press and bad consumer experience of dipping the chip might make mobile wallets look better. Schultz, noting that there's been criticism that mobile payments are a solution in search of a problem, says, "EMV might have created the problem that mobile payments need to solve."