Consumers in the United States will be using a more advanced credit card at the checkout counter at most of their favorite stores. The Payment Networks’ Liability Shift associated with EuroPay, MasterCard, and Visa (EMV) takes effect this month in the United States, and by the end of 2015, 570 million EMV cards are expected to be issued, with 78,000 EMV-enabled merchant locations.
EMV is a global standard for cards equipped with computer chips and the technology used to authenticate chip-card transactions. Europe, Canada, Latin America, and the Asia/Pacific region are all well on their way with migrating from the legacy magnetic strip standard to EMV chip card technology. Following numerous large-scale data breaches, and increasing rates of counterfeit card fraud, U.S. card issuers are migrating to this new technology to protect consumers and reduce the costs of fraud.
However, according to Avivah Litan, vice president and distinguished analyst at Gartner, EMV cards are no panacea. “If the U.S. is anything like Europe – which of course it is – the major gain from EMV will be for the banks, who will see a reduction in counterfeit fraud claims that they are normally liable for,” she says. “At the same time, retailers will see an increase in card-not-present (CNP) ecommerce fraud, which they are liable for.”
Litan points to a recent report by the European Central Bank (ECB) which highlighted a shift from card-present fraud to CNP (online, mail and telephone order) fraud. 66% of the total fraud value in 2013 was CNP fraud, an increase of over 20 percent from 2012. In contrast, card present fraud decreased at the ATM by 14% and at the Point-of-Sale (POS) by 8%. The ECB report attributes the decline in card present fraud to the widespread adoption of EMV, which in turn has initiated a criminal migration to CNP fraud.
“EMV is also expected to slowdown everyday shopping by rendering the popular ’swipe ahead’ payment method unworkable. With EMV there is no ‘swipe ahead’. Instead shoppers have to wait for the total to be tallied, and then have to dip their card in the card reader and wait a few seconds for the EMV card cryptographic handshake to occur with the terminal and bank authorization system,” says Litan.
While an extra few seconds may not seem a big deal, this change is set to impact millions of rushed shoppers, hungry lunch customers and late arrivals at the movie theater. The time lapse is, of course, an even bigger deal to retailers with strong economic incentives to move cash lines as fast as possible.
All told, retailers may well find themselves at the short end of the EMV stick as they encounter both slower checkout lines and higher online fraud rates.
“Over time, however, retailers will gain value with the added security of EMV chip cards,” says Litan “When 80 percent or more of their transaction volume is EMV-based, criminals won’t be as incented to break into their stores to steal data that will be useless to them in counterfeit fraud. However, given EMV adoption rates in other parts of the world, that won’t happen in the U.S. for at least 2-3 years.”