The October 2015 deadline for the US EMV migration is fast approaching. There are many industry articles addressing the perennial question: Will the US be ready? We found one recently on ZDNet that asked an even more interesting question: Why didn’t the US migration happen sooner?
80 countries around the world are currently in various stages of EMV chip migration, including Canada and countries in Europe, Latin America and Asia. According to EMVCo, as of December 2013:
- 37 billion chip payment cards are in use
- 9% of terminals in Europe are chip-enabled
- 7% of terminals in Canada, Latin America and the Caribbean are chip-enabled
- 3% of terminals in Africa and the Middle East are chip-enabled
- 7% of terminals in Asia Pacific are chip-enabled
In Europe, MasterCard’s liability shift took place on January 1, 2005. Visa’s liability shift took place January 1, 2006. Many other countries around the world, including Latin American and Asian countries, made the shift by 2012. So the question remains: What is the US waiting for?
When cheap solutions basically work
This article makes two interesting claims. One is that the US has been slow to shift to EMV because it didn’t need to, for a number of reasons. Thanks to an advanced telecommunications system, the US has been able to process transactions 24/7. It’scheaper and easier to stick to magnetic stripes and card approval over phone lines. This was in contrast to European telco infrastructure, which was significantly behind. According to the article:
In turn, it became costly and problematic to verify a card purchase with the use of a phone line and a POS terminal.
So merchants would often fall back on batch processing, where card transactions are stored in a POS terminal and sent to the issuer in large groups for verification. This, of course, gave criminals ample time to commit fraud at the POS level.
This is why Europe had to come up with a more advanced card approval solution faster than the US. Indeed, France rolled out the first EMV chip in 1986! This puts the US foot-dragging into a much-needed perspective.
Yesterday’s solution for today’s problem?
The second point that the industry needs to address is: Can EMV, yesterday’s technological breakthrough, effectively address today’s global problem of fraud? The answer is yes and no. On the one hand, EMV helps prevent the problem of card cloning, something that magnetic stripes (using the same technology as cassette tapes) only exacerbates.
Some of EMV’s weaknesses include the fact that cardholder data could be exploited by fraud or malware on the POS. And then there’s the whole world of e-commerce that EMV chips don’t even begin to address, mostly because the roles of today’s internet = couldn’t have been anticipated in the 1980s.
This is where the role of tokenization and PCI standards come into play. EMV alone will not solve the worldwide problem of fraud. Fighting fraud requires the deployment of a number of different solutions on the part of merchants, consumer and processors.
As Credorax CEO Benny Nachman pointed out in a recent interview:
The Apple Pay solution is EMV. It’s tokenized and more secure than other payment formats. If that will help push EMV adoption across U.S. merchants, then it’s a great step forward. From a security perspective, it’s a huge step.