Chip card rollout is coming – but how quickly?
Launch of technology slow despite Oct. 1 shift in liability
How long will it take for the new chip card technology to take hold in Iowa?
Some experts say the next year or two will bring a significant rollout of both the smart-chip-enabled credit and debit cards as well as the readers for merchants to accept them. Others say widespread acceptance could take as long as a decade, given the costs involved in replacing both the cards and the systems.
The Europay MasterCard Visa (EMV) smart card standard, which the United States has lagged behind much of the rest of the world in adopting, uses a microprocessor chip embedded in the card, rather than a magnetic strip, to store cardholder data. Having a built-in microprocessor enables the use of better authentication measures to prevent counterfeits, provides for added cardholder verification methods, and allows for more options in card authorization.
A significant milestone in the EMV rollout will take place on Oct. 1. On that date, merchants that haven’t invested in EMV-enabled equipment will be liable for fraudulent purchases made with counterfeit credit or debit cards. Conversely, the card issuer is on the hook if a customer presents a card that is not EMV-enabled to a merchant that has the capability to read an EMV card.
With the new liability rule, “the smarter technology wins,” said Dan Kramer, senior vice president of SHAZAM Inc. in Johnston, an electronic funds transfer network provider that works with its member financial institutions to issue the EMV cards.
Kramer, who believes EMV adoption will see a slow rollout over the next decade, said the Oct. 1 date isn’t a make-or-break scenario for card issuers or for retailers.
“We don’t believe that consumers — who have been hearing about this date for so long — should believe that if their financial institution doesn’t adopt EMV by Oct. 1 that they are any less safe; the same with the retailer,” he said. “They’ll eventually get there; the last thing they want is a breach.”
SHAZAM, which operates a payment network that serves about 1,300 financial institutions, primarily in the Midwest, is currently working with about 200 of them to issue EMV cards to their cardholders, Kramer said.
Because the cost of an EMV card is roughly four times that of a conventional magnetic strip card, “very few financial institutions are electing to mass-reissue their cards all at once,” Kramer said.
Estimates of how quickly the technology is being launched in the United States vary widely. Aite Group last year estimated that 70 percent of credit cards and 41 percent of debit cards would be EMV-enabled by the end of this year. Javelin Strategy & Research, however, predicts that just 29 percent of credit cards and 17 percent of debit cards will be EMV-enabled by year-end.
The Members Group, which provides payment card services for credit unions and community banks, has issued EMV cards to approximately 98 percent of its credit card clients, said Chole Casber, product manager for TMG. The Clive-based payment services company is not as far along with its debit card clients; by the end of the year, it will have 30 percent of its debit card clients converted or in the process of being converted to EMV cards, he said.
“On the credit side, what we saw was more of a natural re-issuance as the cards expired,” he said. “On the debit side, we’re seeing more of a mass reissue. The card issuers prefer to do that because of the liability shift; debit cards tend to be used more than credit cards, and they want to be ahead of the (Oct. 1) liability date.”
Card issuers are going to drive faster rollouts of EMV cards in part because of the race to develop dual-interface cards that will be compatible for handling mobile payments, Casber said. Though the rollout of EMV took about 10 years in Canada, “from our perspective, it’s going to be a faster pickup (in the U.S.) than it was in Canada.”
On the merchant side of the equation, TMG projects that between 35 and 40 percent of U.S. merchants will be ready for EMV by the end of this year, with continued growth into next year. “We really think that 2016 is going to be the year of the merchant migration,” Casber said.
SHAZAM’s Kramer foresees a much more gradual adoption of the technology.
“The end game is that we see the adoption target being hit when roughly 80 percent of merchant terminals can support an EMV transaction and when about 80 percent of the cards are in the market,” he said. “There is wild speculation out there when exactly that will be accomplished. We believe that’s another 10 years from now — 2025.”
From a retailer’s perspective, cost is a hurdle that may cause many merchants to wait before deciding to upgrade their point-of-sale equipment to accept EMV cards, said Jessica Dunker, president and CEO of the Iowa Restaurant Association.
“I would say you will see an increasing number of retailers moving to the EMV technology, but the adoption will be slower than expected, because there’s not an understanding of the fraud that the retailers will be exposed to,” Dunker said. “But until it’s really understood what the impact is on your business, you’re not going to be inclined to switch. I think you will see a little bit of wait-and-see in the industry to see if they can do the upgrade in a methodical way that makes sense.”
The move to put more fraud-resistant, secure payment card technology into place in the United States accelerated following the massive data breaches in 2013 against major retailers such as Target Corp. The retailer has since spent an estimated $100 million to install chip-enabled card readers at all its stores. Wal-Mart Stores Inc. introduced EMV card readers in its stores a year ago and by November 2014 had EMV payments available at all of its stores. Wal-Mart also rolled out its own branded EMV MasterCard for both its Wal-Mart and Sam’s Club locations last summer.
Some retailers are holding their cards pretty closely about their progress on the EMV rollout. Representatives from Hy-Vee Inc. declined a request for information about its plans for EMV card readers in its grocery stores. Convenience store chain Kum & Go LC also declined to provide specifics.
Kum & Go said in an emailed statement: “We take our customer data privacy very seriously and are actively working with all of our vendor partners to be able to accept EMV chip cards, but don’t have any more specifics to share right now.”
As a small retailer, Heart of Iowa Market Place owner Kelly Sharp said she believes she had a much easier time dealing with the switch to EMV than the ordeal many bigger retailers face.
By negotiating with her credit card processor, Sharp said her net cost per machine to upgrade each of her two credit card readers was just $150, since the machines she replaced were both relatively new.
“As a retailer, I don’t want to be responsible for someone bringing in a stolen card,” she said. “So I’m all for meeting that deadline. … We always check IDs, but that doesn’t always protect you. This is one additional layer of protection for the retailer and the customer as well.”