US EMV Migration: Looking for the Silver Lining in the Clouds
It would be easy to assume that the migration to EMV in the US has gone terribly. The press is full of stories about slow transactions, inconsistent customer experiences and slow merchant adoption. Whilst not living this day-to-day, I also experienced this frustration first-hand on my trips to the US earlier this year; I wrote about it in a previous blog.
And yet, while the end customer experience clearly must improve, real progress has been made. Back in June, Visa reported "over 300 million chip cards in market and 1.2 million merchant locations." In August, MasterCard announced that "80 percent of its U.S. consumer credit cards have chips" and reported seeing "1.7 million chip-active merchant locations on its network, representing nearly 30 percent of the U.S. merchant population and a 374 percent increase in chip terminal adoption since October 1, 2015." Of course, these numbers would be far more impressive if the liability shift was happening in October of this year rather than last. However, EMV migration does not happen overnight, and in the market as complex and diverse as the US, it was always expected to take many years, especially considering the early reluctance and skepticism of the industry, and the additional complications in debit.
One of the challenges for merchants is getting their new EMV terminals certified, which can take a long time, especially when there is a backlog of demand. To alleviate the problem, in June both Visa and MasterCard have relaxed terminal certification requirements by reducing the number of tests, giving acquirers more freedom and responsibility in the certification process, allowing standard configurations and providing more resources to value-added resellers (VARs).
Also, recognising that it's not always the merchants' fault that they are behind with EMV implementation, both networks introduced measures to minimize chargeback costs to merchants who have not yet transitioned to EMV. For example, MasterCard has "checks and blocks to ensure that chargebacks follow the liability shift guidelines", such as not allowing chargebacks on fraudulent ATM and fuel transactions, where the liability shift has not yet taken place. Visa has taken a step further and announced that from July 22, Visa would "block all U.S. counterfeit fraud chargebacks under $25", while from October 2016 "issuers will also be limited to charging back 10 fraudulent counterfeit transactions per account."
Of course, there is a risk that rather than incentivising merchants to speed up EMV adoption, these changes to the network chargeback policies will reduce the pressure on merchants to migrate. Verifone, one of the largest POS companies, has reported lower revenues for Q316, partly as a result of "lingering EMV adoption issues", and has stated that their "outlook for Q4 now assumes a significantly slower EMV rollout." Not surprisingly, Paul Galant, CEO of Verifone, has emphasised the company's "relentless execution" on "the long-term vision for Verifone to transform from a box shipper to a services provider."
Nobody is under illusion that EMV migration in the US will be over any time soon. However, we must recognise that real progress is being made. Changes introduced by the networks, as well as new liability shift dates, such as for MasterCard ATM transactions coming into effect in October this year, should help keep the momentum going. And while the consumer adoption of various contactless pays, such as Apple Pay and others, has yet to "set the world on fire", perhaps they will end up giving another reason for merchants to invest into chip terminals? After all, for the optimists amongst us, every cloud has a silver lining.