Visa's Solo Chip-Card Move Disrupts Other Initiatives

Published on American Banker by Kate Fitzgerald

Friday, August 12, 2011

Many merchants were already collaborating on their own plans to upgrade their terminals to accept chip cards, which improve security over magnetic-stripe cards. And although merchants have long clamored improvements in payment card security, Visa's move falls far short of what they ultimately would like to see in the U.S., says Dodd Roberts, president and chief executive of the Merchant Advisory Group in Irving, Texas.

"We think the best approach to migrating to [EMV Integrated Circuit Card Specifications] would be to have a collaborative process made collectively by merchants, card networks and financial institutions," Roberts says. "It's not helpful to have independent individual announcements come out for strategic reasons that are not coordinated, fostering different rules and timetables for the various players."

The group, comprising 50 of the nation's largest retailers (including Wal-Mart Stores Inc., Best Buy Stores Inc., Walgreens Corp. and McDonald's Corp.), "was in the midst of" trying to build cross-industry support for consistent new card-payment technology standards when Visa unveiled its own migration plans for EMV cards, Roberts says.

Visa on Aug. 9 announced a series of incentives for a U.S. migration to an EMV contact and contactless payments infrastructure. In most cases, it will shift the liability for fraud from issuers to merchants' acquirers in October 2015 if merchants do not have the proper terminals for reading chip cards.

The Merchant Advisory Group also is "concerned" that Visa's EMV initiative does not require PIN-based chip card transactions.

"We're very disappointed that there is still such a strong reliance on signature as a cardholder-verification method and no concurrent plan from Visa for preventing fraud in card-not-present transactions," Roberts says.

The other card brands so far have not indicated whether they plan to follow Visa's lead in setting liability-shift deadlines for industry participants to adopt the EMV standard. Though card networks eventually aligned their policies in other markets that migrated to EMV, there is no certainty they will do so in the U.S.

"A lot of the move to EMV has to do with readying the landscape for mobile payment, which suggests that eventually Visa will need to come out with far more comprehensive mobile-payment technology guidelines," says Jim Schlegel, product manager at payments software developer ACI Worldwide. "It's possible that by the time MasterCard reacts to the evolving new payments technology, its guidelines will be much broader, addressing more than just EMV."

The three other major U.S. card brands are not tipping their hands.

A MasterCard representative offered no details about whether it plans to push EMV in the U.S., but said in an email that MasterCard "has been a pioneer in EMV development" worldwide.

Discover Financial Services is "ready to process EMV payments in the U.S.," a representative said by email, and Discover "is committed to using global standards to help insure interoperability and ease implementations for merchants, acquirers and issuers."

An American Express Co. representative said, "there are markets today, like the U.K., where we already offer [EMV cards]," but it has not seen "a large number of" requests for the technology in the U.S.

In other markets that have migrated from magnetic-stripe cards to EMV technology, brands have generally followed one another's liability-shift guidelines.

Visa in 2004 was the first to signal plans to migrate to the EMV chip card standard in Canada, with MasterCard following a year later with its own, similar guidelines. Both networks' Canadian EMV liability-shift rules went into effect in March.

Amex last August was the last network in Canada to announce its EMV guidelines when it set Oct. 31, 2012, as the date issuers, merchants and acquirers supporting Amex will become liable for credit and charge card fraud initiated with mag-stripe cards that EMV technology could have prevented.

Canada's case for adopting EMV was "somewhat different" than that of the U.S., says Catherine Johnston, president and CEO of the Advanced Card Technology Association of Canada.

"Credit card issuers were eager to promote a move to [EMV] to cut fraud because they were bearing most of the cost of counterfeit card transactions," Johnston says.

Nevertheless, the major card brands probably will move in concert regarding EMV basics in the U.S., particularly because EMV Co. Ltd., the group that oversees chip card standards and interoperability issues, is co-owned by card networks, Johnston says.

"It's reasonable to assume that the other card networks will eventually make an announcement to their members about a move to EMV, but the others need not be accompanied by a liability shift," Johnston says.