However the actual on-the-ground experience is less than the dramatic switch one might have expected. For one thing, most EMV cards worldwide are chip-and-pin, that is, consumers have to enter a PIN after the card is dipped. But US EMV cards are largely chip-and-signature, with many of the banks and large card issuers saying it would be too confusing for consumers otherwise, who aren’t used to inputting a PIN at the point-of-sale. And, the new EMV cards being issued still feature a magnetic stripe on the back to facilitate transactions for non-EMV compliant merchants.
But what does this switch entail for corporate card programs? According to Mary Miklethun, head of Large Market Commercial Card Product & Marketing for Minneapolis-based, U.S. Bank, it means corporate travelers are better protected against fraud in cases where the merchant is equipped for chip processing. But given that most cards now being issued in the US continue to have the magnetic stripe on the back, cardholders should not be adversely affected when patronizing merchants who have not yet made the switch, she adds.
Miklethun says all of U.S. Bank’s corporate travel card customers have been issued new chip cards as of Nov. 1. “Our corporate purchasing and one card customers are also being issued chip cards as they expire. This means every new plastic card that we issue today is EMV chip enabled,” she adds.
The October transition was not a total abandonment of all the card transaction technology in the US, but rather a rule change known in the card business as a ‘liability shift’ that’s designed to accelerate adoption of the EMV standard. Cardholders can continue to make purchases with the old swipe-and-sign technology, and merchants can continue to accept payments that way.
But if the transaction is somehow fraudulent, the liability for the fraud shifts to whichever party is continuing to offer the more vulnerable technology. That means a merchant still using the old system will be liable for any fraudulent transactions if the customer has a chip card. On the other hand, if the merchant has a chip-and-PIN terminal, but the bank hasn’t issued a chip card to the customer, the bank would be responsible.
The liability shift is a milestone for the US, but not a deadline, says Carolyn Balfany, SVP of product delivery – EMV for MasterCard. “Banks and merchants were encouraged to assess their business and their risk as well as the experience they want their customers to have and adopt chip technology when it makes sense for them,” she explains.
“MasterCard announced its roadmap for the liability shift in January 2012, giving businesses ample time to make plans. The October 2015 liability shift was enacted to encourage adoption of the greater levels of security offered by chip cards. It protects the entity – be it merchant or bank – who offers the greater level of security by holding the other entity with less secure systems responsible for fraud. For example, if fraud occurs when a chip card is swiped at a terminal that is not chip-enabled, the retailer is responsible for the fraud. And vice versa.”
Corporate card programs that haven’t begun issuing EMV cards, or only partially so, run a greater risk of fraud, says Piers Gibbons, UK product manager for AirPlus International.
“Fraud is a painful experience for any victim and the pain is far worse when traveling abroad for business,” he says. “The card gets blocked and the replacement card is sent to the travelers home address meaning they are stuck abroad without a payment card. Companies should always request EMV cards from their payment provider as they have significantly reduced the amount of fraud they will experience. It will also make the lives of the cardholders much easier saving them the pain of a fraud attack whilst traveling.”
Life in the Slow Lane
According to Boston-based research firm Aite Group, concerns remain about smaller merchants’ awareness of the chip migration as well as the likelihood that many midsize merchants will be able to convert in time for the liability shift.
In a report released earlier this year, Aite noted that while merchants were protected from the nearly $3 billion in counterfeit credit card fraud at the point of sale prior to the mandatory shift in October 2015 – a number the firm says will grow to $3.6 billion by the end of 2015 – a portion of this burden will now shift to impact merchants who have failed to upgrade. This fraud will disproportionately affect small and midsize merchants that sell fungible goods such as gift cards, jewelry and electronics and who will lag in upgrading their terminals, Aite predicts.
Beyond EMV chips, Aite reports nearly all terminals being shipped to merchants today incorporate near-field communications, or NFC, a move aimed at helping to enable the mobile payment ecosystem. However the survey finds that only about one in five smaller merchants are even aware that their chip terminals include the new NFC capabilities.
Aite Group found that a majority of card issuers are choosing to initially issue contact-chip rather than dual-interface cards. Drivers of this decision are cost, a desire to keep the initial deployment as simple as possible, and a belief that the merchant infrastructure will not yet be ready to support contactless transactions in any great scale by the liability shift date.
Despite the switch to EMV being announced in 2011, many issuers and merchant are still not compliant with the new status quo. According to MasterCard data, as of November only a little less than half of Americans had received a chip card, while research from TD Bank indicates that only 41 percent of merchants have installed the requisite equipment needed to accept them.
Since EMV cards can greatly reduce fraud, this makes it imperative that adoption of them does not continue to lag behind, says MasterCard’s Balfany.
“A chip card transaction offers advanced security by making every transaction unique,” Balfany explains. “Chip cards are inserted into chip payment terminals. The chips ‘talk’ and generate unique codes for transactions. If someone were to skim a card and use this unique code again, the transaction would be flagged as fraudulent. This is how chip cards help eliminate counterfeit fraud. The 80-plus countries that have already implemented EMV have seen counterfeit fraud reduced by significant amounts; in the hundreds of millions of dollars.”
Airplus’ Gibbons says one reason for the slow adoption is that the cost to US banks and acquirers of replacing all the existing terminal infrastructure to support EMV technology is in the billions with minimal financial reward in return.
No Cards in the Cards
Another factor influencing the slow switch from mag stripe to EMV cards is the rapid rise in mobile payments. “A lot of issuers are taking a wait and see approach to understand how fast mobile payments penetrate the market before making a decision,” Gibbons adds. “If mobile payments take off in the US, it is likely some issuers will skip EMV entirely and move straight to mobile payment.”
But luckily for business travelers, the rate of issuance of EMV cards for corporate card programs is generally higher than to individual consumers. This is especially true as business travel has become increasingly global.
“Within the US, corporate programs were relatively early adopters of EMV technology given international travel needs,” explains Harmeet Soin, head of Americas Product Management for Bank of America’s Global Card and Comprehensive Payables group. “So while corporate programs continue to be part of the overall transition process in the US, I think there is a greater familiarity with using EMV-enabled cards for many of those companies and their cardholders.”
Soin believes the official switchover should not create any problems for US-based business travelers; and if anything may actually be a boon. “Rather than create problems, the EMV switchover in the US should actually alleviate some of the card acceptance issues that have existed to date,” Soin says. “EMV is a globally consistent standard. As all regions adopt that standard, card acceptance should not be a critical concern.”
Gibbons says the impact for US business travelers going abroad should be minimal. “The majority of markets have already adopted the EMV technology in an effort to combat fraud,” he noted. “Furthermore, EMV cards are always issued with a mag stripe as a fallback in case a chip and PIN transaction fails or the POS terminal only accepts mag stripe cards. The majority of terminals globally have a number of options to accept different transactions whether they be contactless, EMV or mag stripe. The switchover will take a period of adjustment for US business travelers as they get used to the chip and pin payment model. Forgetting PIN’s is a very common occurrence so card issuers need to offer cardholders an easy yet secure process to remind cardholders of their PIN,” he advises.
Miklethun, who says that U.S. Bank began offering chip-enabled cards to corporate clients in 2012, says there will likely be a period of transition for the next several years before – or even if – the US market is weaned off of traditional magnetic stripe cards. For one thing, both Visa and MasterCard require that all cards—whether enabled with a chip or not—also have a magnetic stripe to ensure acceptance at point-of-sale terminals that have not been upgraded. In the case of U.S. Bank’s own EMV corporate cards, they have four-year expiration dates, compared with three years in the past, which means the stripes will be there till at least 2019.
Bank of America’s Soin also believes it will probably be some time before the mag stripe is fully gone from the payments landscape. “Europe, as an example, was the first region to convert to EMV in the mid-nineties and still has some mag stripe in existence today,” Soin noted. “With that said, mag stripe should become much more the exception than the norm in a few years.”
Along with safer, more secure payments, an important reason for chip adoption is to ensure Americans traveling aboard and international travelers coming to the US have consistent payment experiences, says MasterCard’s Balfany.
“Cardholders can continue to travel with confidence knowing that their cards will be accepted wherever they go,” according to Balfany. “It’s a good idea for US travelers going abroad to call ahead and request chip cards for peace of mind. Most banks and credit unions are providing chip cards as existing cards expire or need replacement and are more than willing to send the cards in advance of international travel.”
