Like campaign managers at the end of a long election trail, top payments executives spent the final hours leading up to and shortly after the official EMV liability shift launch supporting the efforts of the past four years and providing the latest details on chip-card migration.
The liability shift really signals the start of a new campaign, not the end of the task to wipe out counterfeit fraud. That was the overriding theme of a Visa conference call, a MasterCard press release and a "Cards 101" session provided by the Electronic Transactions Association.
Nearly 60% of U.S. consumers possess at least one chip card, and the U.S. market has more Visa chip cards in place than any other EMV market in the world.
Visa executives tout those numbers as signals that EMV security against counterfeit fraud is off to a good start in the U.S., even though Oct. 1 signals only the first day of a liability shift timeline that was set four years ago.
Merchants unable to handle EMV today become liable for any fraud at the point of sale stemming from EMV cards that they instead revert to the backup mag-stripe technology to initiate a transaction.
The key points at the dawn of the liability shift center on realizing that not all consumers will have chip cards and not all merchants will have EMV terminals right out of the gate, said Jason Oxman, CEO of the ETA.
"It will take some time, we have 1.2 billion cards to replace," Oxman said.
Also, the payments industry understands that "EMV is not a panacea" and addresses only one type of fraud, Oxman added. "We are doing this because it is an important first step, and we are doing other things like deploying end-to-end encryption and tokenization."
In its latest research as of mid-September, Visa reports 151.8 million Visa chip cards in circulation and 314 merchant locations prepared to accept EMV. Of those cards, 90.4 million are credit cards. A year ago, only 20 million chip cards were in circulation.
MasterCard says that 40% of all of its branded consumer credit cards feature EMV chips, a statistic bolstered by an update from the Payments Security Task Force that forecast the number of chip cards in the U.S. will grow to 60% by the end of this year and 98% by the end of 2017. The task force also predicts 40% of merchant terminals will accept EMV by the end of the year.
"Every other country that has moved to EMV chip before the U.S. has taken at least two or three years after the liability shift date to get to roughly 60% to 70% of their domestic payment volume to become chip-on-chip transactions," said Stephanie Ericksen, vice president of risk products for Visa.
It took another year or two after that for those countries to reach roughly 90% of volume, showing that "it takes time for the whole ecosystem to build out on the issuing side and terminalization side," Ericksen said.
As with any campaign, the four-year journey to get the U.S. operating with chip technology common throughout most of the world encountered some stumbling blocks. Consistent use of EMV debit cards may come later because it took two years for the industry to establish who would deliver and control the application identifiers technology to comply with Durbin amendment two-network routing mandates.
Still, the debate causing the most tension has centered on the issuing of mostly chip-and-signature cards in the U.S. rather than chip-and-PIN, as is common in most other countries.
The Merchant Advisory Group made its points again this week about how U.S. merchants should have been given more time for the conversion to chip from mag-stripe technology, and its unwavering support of complementing the chip card with a PIN for authorization.
But Visa executives said their research indicates waning use of PINs, even in Europe and other EMV countries.
"From a cardholder experience point of view, today more than 60% of transactions are processed from a swipe with no signature or PIN, and we expect that trend to continue as we move forward," Ericksen said.
Visa supports PIN and signature, Ericksen added, but the card brand's research indicates that countries using PIN have started to move a greater number of their transactions without PIN, mostly from setting low-value thresholds for cardholder verification.
"As we move toward the future with Apple Pay and Android Pay and biometrics, more transactions will move through the system without PIN," Ericksen said.
ETA's Oxman takes the argument in a different direction, saying a discussion about the proper cardholder verification methods needs to take place, but "it has nothing to do with the chip migration."
As payments move to mobile, discussions about appropriate CVM have to include many aspects, Oxman said. "We need to talk about where signature is appropriate, where PIN is appropriate, where no CVM is appropriate and where fingerprint or retinal scan is appropriate," Oxman added. "It's an appropriate discussion about changing technology at the POS, but it is not a chip vs. magnetic stripe issue."
Comparing the U.S. migration to those in Europe does not paint a complete picture in regards to use of a PIN, Oxman said.
"When the chip rolled out in Europe, it came with mandatory PIN because none of the terminals were connected to the Internet, so there was no way to authenticate a transaction at a terminal," Oxman said. "Authentication of chip card transactions happened locally offline with PIN."
In the U.S., all terminals are connected to the Internet, so there is no offline authentication, Oxman said. "The chip can do its job and generate the dynamic security code for verification online, so it doesn't need a PIN in order to verify it is a valid chip," he added.
Merchants that are not EMV ready will not see a barrage of chargebacks starting today. Not every card presented will have a chip, and those are the only cards eligible for chargebacks if the merchant cannot accept them, Visa's Ericksen said.
"The focus has been on getting major retailers and acquirers ready for EMV," Ericksen said. "Counterfeit fraud is occurring at big retailers and electronics stores."
Merchants may start to see chargebacks occurring during the first couple of years after the liability shift, but those will decline as more merchants get EMV-enabled terminals, Ericksen added.
The card brands' focus all along has been to get as many merchants ready for EMV as possible, using the Oct. 1 timeline as an official entry point.
Payments executives generally agree that it won't take long for merchants who encounter some measure of counterfeit fraud to protect themselves with EMV at the frontline.
"We hope to keep educating people about the value of the upgrade and the advantages of mobile, and we are hoping more will make that investment," Oxman said. "After all, you don't want to be the last merchant to switch to EMV."