Officially launched in the United States (US) in 2015, Europay, MasterCard, and Visa (EMV) chip cards have witnessed a very bumpy ride. Up to now, many services and businesses are yet to implement the chip card into their payment system despite the fact that chip cards are known to be much more secure than the existing magnetic stripe credit and debit cards both for businesses and clients. In many regions and countries, banks and authorities have imposed a deadline for the transition that is overtly dragging on slowly. It is thus expected that by 2018, EMV chip cards will finally position themselves as the new standard in card processin
An overview of how EMV cards are faring worldwide
Statistics show that 6.1 billion of EMV payment cards were in circulation globally by end 2016. Experts agree to say that the higher the adoption of EMV chip cards worldwide, the more robust the entire payment infrastructure becomes.
A disaster in the US
Since its launch in 2014 and since the official launch in 2015, EMV chip cards have still not been adopted everywhere in the US. The nationwide transition is still and all underway, with approximately 71% adoption as per statistics of 2016. The migration to EMV chip cards is viewed as a Herculean effort, especially for banks that have to switch about 1.2 billion active payment cards across the country. Next, the EMV migration is no small feat for point-of-sale and payment terminals as there are more than 8 million of them in the US. This process is definitely an expensive one, estimated to cost a total of 8 billion to 12 billion dollars. One of the major boosters of the migration was the liability shift specifying that businesses could be held accountable for certain types of fraudulent transactions if they do not make the needful to accept chip cards.
Nonetheless, the adoption of chip cards proved to be painstakingly slow, confusing, and hectic in the US. Card readers required consumers to insert their chip cards instead of swiping, taking much longer to be read. On the other hand, other retailers asked consumers to do just the opposite, that is, to swipe the card. As a result, the whole idea of chip cards resonated confusingly to consumers due to the lack of coherence. The whole confusion was attributed to a maelstrom of incompetence on the behalf of all players- banks, credit card companies, retailers, payment processors, and terminal manufacturers- who focused on their own bottom lines rather than trying to see how their approach will impact on customers.
Apart from the incoherence and confusion, the whole transition process proved to be very complex. For instance, retailers in a hurry to obtain their chip card readers due to the liability shift did not necessarily look for a professional chain retailer. On top of that, most retailers had to wait several months to obtain their new terminals. To make things worse, the acquiring of chip card readers did not imply that retailers could instantly use them: indeed, payment processors needed to certify that their systems were compliant and were operating correctly before they could be used. The whole set of processes were more of a hurdle than a transition.
Further to that, the FBI equally pinpointed, belatedly, that the chip-and-signature option deployed was not safe and that using a PIN code instead of a signature would have been less risky. While critics declared that opting for the PIN code option would cost banks much money as they would not have to store PIN codes for every client, banks, on their side, retorted that they feared customers would have difficulty in remembering the 4-digit codes.
Chip cards work differently in Europe
The EMV card system is different from that in the US. In Europe, countries use a chip-and-pin option. When making a purchase, clients have to insert their card into a reader and enter their PIN code while the card is still in the slot. The cardholder generally does not have to sign a receipt. Unlike the American system that relies on the authenticity of a signature to authorize a transaction, EMV payment systems in Europe rely on the PIN codes. In the United Kingdom (UK), the EMV transition started back in 2006 with the goal to combat counterfeit and stolen card fraud. The shift has proved to be highly beneficial. Today, contactless EMV cards, devices, or wearables issued by banks or card companies are widely being used to deliver seamless customer experiences for various services such as the public transport.
Asian banks are setting deadlines
Asia was hailed as the leader in EMV migration back in 2003. Certain countries such as Malaysia stayed ahead of the curve as it completed its transition to chip cards already in 2005. Card fraud was drastically reduced by 85%.
In India, the Reserve Bank of India has imposed 31 December 2018 as the deadline for banks to complete their shift towards EMV cards. The Reserve Bank has also rejected all calls for deadline extensions for issuing of cards, which was initially imposed on 1 September 2015. Irrespective of the validity period of magnetic stripe cards, the latter should equally be replaced by the deadline. ATMs had to be able to handle EMV cards by last September while POS terminal infrastructures were equally upgraded to accept EMV cards since last May. Just like in the US, once banks migrate to EMV, merchants failing to adopt the EMV technology will become accountable for fraudulent actions when using magnetic stripe cards.
In the Philippines, the Bangko Sentral ng Pilipinas (BSP) is also aiming at pushing banks to fully adopt EMV chip cards at a faster rate. A deadline has been imposed and those failing to abide by 30 June 2018 will have to face a penalty. The initial deadline was set at 1 January 2017 but many banks could not comply with the new rules at that time. The Monetary Board has additionally issued further guidelines to raise awareness and strengthen customer protection.
China, on its side, is witnessing sluggish pace in the EMV transition this year compared to previous years. This trend may be linked to recent events in the country such as the government initiative to restrict the number of bank accounts one citizen may hold simultaneously. UnionPay, China’s major payment network, subsequently had to pause co-branded card issuance. In April 2017, nonetheless, Bank of China launched the country’s first cross-border EMV chip debit card together with Mastercard. Outbound travel, as well as cross-border e-commerce, had fueled this decision as the demand for payment products supporting international purchases kept soaring.
Card fraud plummeted while online fraud skyrocketed
The PIN coupled with the microprocessor embedded in the chip card makes it virtually impossible for fraudsters to clone data. The fact that an EMV transaction creates unique transaction data make it impossible for fraudsters to execute new transactions. Retailers having upgraded to EMV card terminals saw a 47 % decline in counterfeit card fraud in May 2016 compared to the same month last year, according to Visa. MasterCard evaluates the drop to 54 percent during a corresponding period.
According to statistics, fraud on lost and stolen cards is at its lowest for the last two decades. In the UK, retailers affirm that losses have plummeted by 67% since 2004. The same scenario is noted in Canada which adopted the EMV card in 2008. While losses from debit card skimming in the country were recorded at CAD$ 142 million in 2009, same went down to CAD$ 29.5 million in 2013.
In this more secured payment landscape, fraudsters obviously had to review their strategies. While EMV cards resulted in a dramatic decrease in card fraud, fraud itself migrated to new unsecured spheres. However secure is the EMV card, it cannot bar against online fraud: for online purchases, neither the pin nor the physical card is required, entailing card-not-present (CNP) fraud. CNP fraud soared by almost 50 percent in the last year, according to a study by Vesta Corporation, a company that authenticates and guarantees online shopping transactions.
Millennials are further disrupting the payment system
While many retailers and institutions are still struggling to fully implement EMV technology into their payment systems, Millennials, representing the largest customer base, are further disrupting the payment system landscape. Hyper-connected, only 33% of Millennials own a credit card. This is the lowest among any demographic. Instead of any type of cards, Millennials are turning towards digital and personalized services such as Google, Apple, Amazon, PayPal or Square. Mobile wallets are much more appealing to this generation who find it very convenient and time-saving compared to other modes of payment. As such, merchants are recommended to not only shift towards EMV cards but to also appeal to this customer base by using innovative technologies to propose loyalty programs and provide real-time offers and discounts. Nonetheless, EMV cards are considered as being more secure in those environments where high ticket items are being purchased such as buying a flat-screen TV.
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