Liability Shift Key to EMV Adoption in the US

Pablo Valerio, International Business & IT Consultant | 6/21/2013 | 17 comments

Pablo Valerio
There are more than a billion credit and debit cards in use in the United States today, but few are equipped with safer EMV technology. Credit card companies want to change this, but the main issue for EMV (Europay, MasterCard, and Visa) adoption is cost: The replacement of a billion payment cards plus the replacement of the payment terminals could total over $8 billion. On the other hand, the cost of credit card fraud is estimated to be as high as $8.6 billion per year, so there is incentive to get this done.

The credit card companies have a plan. They want to shift the liability to non-EMV compliant merchants and card issuers. MasterCard states: “Chip liability shift means that when a counterfeit, fraud transaction occurs in a country or region that has migrated to the EMV chip card platform, the liability for the transaction will shift to the non–chip-compliant party.”

In other words, if someone clones the magnetic stripe of your EMV-compliant credit card and uses it to buy groceries at a local supermarket that doesn’t have EMV POS terminals, the supermarket will be required to cover the cost of the fraudulent transaction.

Conversely, if the merchant is EMV compliant and has a POS system equipped to read EMV cards, and your card is not, because your financial institution has not started issuing them yet -- effectively forcing the merchant to run your card on the magnetic stripe reader -- then your bank or credit card company has to pay for the misuse of your card. This is actually the case when Americans visit Europe, where most transactions are CHIP+PIN. European payment processors “know” when a card is supposed to be EMV enabled, so they don’t accept non-EVM transactions on those cards. Most of the big banks in the US provide EMV chip cards to travelers who request them.

All three credit card companies agreed that, by October 2015, they will transfer liability for fraudulent transactions away from the party that has the most secure form of EMV technology. By October 2016, the liability shift extends to ATMs, and by October 2017, the liability shift extends to automated fuel dispensers. This has been in effect in Europe since Jan. 1, 2005.

CIOs who manage points of sale, ATMs, or other places with card readers need to take note of potential growing liability. If you are considering deployment of new payment terminals, it is probably a good idea to invest a few more dollars now and take advantage of EMV technology, both CHIP+PIN and Contactless, and save yourself a lot of trouble. If you’re not considering new terminals, it might be time to do plan for a transition by the end of 2015. The cost of those new terminals isn’t cheap, but the cost of the fraud might be worse.

View Comments: Threaded | Newest First | Oldest First
Pedro Gonzales   Liability Shift Key to EMV Adoption in the US   6/21/2013 12:07:33 PM
security to credit/debit grealty needed
I was reading that cloning a credit card isn't that hard. I'm very happy that such securities measures are being push and plans are being done for their adoption.  I wonder how would companies react when liability shift to them rather than the credit card company,
Pablo Valerio   Liability Shift Key to EMV Adoption in the US   6/21/2013 12:23:37 PM
Re: security to credit/debit grealty needed
@Pedro. You're right, cloning a mag stripe is so easy! I had my BoA debit card cloned in Texas a few years ago, and they use it in Florida at gas stations. Fortunately the bank was able to detect the unusual activity and cancel the card.

EMV cards are "almost" impossible to clone, and a PIN is needed for transactions. In Europe credit card fraud on Card Present (CP) transactions has dropped to single digit levels on EMV cards in the past 7 years.
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kicheko   Liability Shift Key to EMV Adoption in the US   6/23/2013 9:42:41 AM
Re: security to credit/debit grealty needed
Potential liability is a good motivator, but i imagine it would even be faster if the EMV compliant readers did not altogether read the non-compliant cards. Similarly the compliant cards not read in non-compiant readers. While this will cause inconvenience for a while, probably it could motivate the shift faster. This would be good for regions where card cloning is rampant.
Pablo Valerio   Liability Shift Key to EMV Adoption in the US   6/23/2013 10:05:42 AM
Re: security to credit/debit grealty needed
@kicheko, all the EMV/Contacless POS systems in use in Europe are also able to read the non-compliant cards. Today that is absolutely necessary for Americans to use their cards in Europe. Just check Sara Peter's account of trying to use her card in Scotland.

But, if an European card is used it only works using the chip+pin interface.
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geeky   Liability Shift Key to EMV Adoption in the US   6/23/2013 12:42:03 PM
Re: security to credit/debit grealty needed
@Pablo: Is it only available for US and European regions ?
Pablo Valerio   Liability Shift Key to EMV Adoption in the US   6/23/2013 1:56:31 PM
Re: security to credit/debit grealty needed
@geeky, It is a worldwide standard, here are adoption rates as of 2011:


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rdv   Liability Shift Key to EMV Adoption in the US   6/23/2013 10:26:28 PM
Re: security to credit/debit grealty needed
Pablo,  Thanks for the EMV technology update.

  The infographic is of 2011, I believe Q2 2013 much be having a much good set of nos.

  As I understand, the liability shift that you mention is going to affect the card issuing bank so that they are non-compliant of theEMV technology?  If the retail merchant is penalised then it will be difficult as he would not transact and demand to pay by cash or their particular store card.  More-over if he installs the EMV reader, then he will charge the customer for that...

 
Pablo Valerio   Liability Shift Key to EMV Adoption in the US   6/24/2013 5:31:41 AM
Re: security to credit/debit grealty needed
@rdv, in Europe the banks are the ones providing the POS terminals to small merchants such as shops, restaurants and other venues. The banks want to keep their business to process all credit cards.

For large merchants they need to be able to process card payments, and they pay low commissions so, if the are going to be liable for fraudulent cards, it tis in their best interest to convert. May of them in the US already have EMV terminals.
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JohnVerity   Liability Shift Key to EMV Adoption in the US   6/21/2013 1:22:30 PM
Re: security to credit/debit grealty needed
Somehow, the CC industry  has managed to live with an amazing amount of fraud all along, no? Has it suddenly spiked, is that why they are turhing to this new approach?
Pablo Valerio   Liability Shift Key to EMV Adoption in the US   6/21/2013 1:53:33 PM
Re: security to credit/debit grealty needed
@JohnVerity, the EMV standard has been in use in most parts of the world for many years now, only the US is behind, because the industry doesn't want to pay the price of conversion.

But as of two months ago all payment processors --the companies that authorize the transactions-- are required to be EMV compliant. And EMV is the standard used in contactless cards.

The new mobile wallet payments with NFC enabled devices, such as Google's Nexus, SONY Xperia and Blackberry 10, are based on EMV embedded on the NFC chips. Those transactions are considered Card Present becuase of the EMV security.

It is not only the increase of fraud, it is a necessity for the new generation of payment systems.
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zerox203   Liability Shift Key to EMV Adoption in the US   6/23/2013 8:48:29 AM
Re: security to credit/debit grealty needed
@Pablo,

I see, so it's a multi-pronged advancement. This really is the future for Credit Card standards and technologies. We've certainly felt the onset of this trend for a while, what with the smartphone-based transactions that you mention, but I didn't know it was tied into the same technologies powering next-gen physical card security and fraud detection all around. I also didn't know the name of the specific technology, so it's nice to put a name to a face, so to speak. Thanks for this inside look! A little dissapointing to hear we're so behind here in the US, but it's certainly a different beast with it's own problems - as we can see by the need for the kinds of laws you describe.
rdv   Liability Shift Key to EMV Adoption in the US   6/23/2013 10:48:30 PM
Re: security to credit/debit grealty needed
Pablo,

   "The new mobile wallet payments with NFC enabled devices..."

  If I have a Nexus phone bought in US and registered my magnetic tape U.S. credit card with say Google wallet.  I come to Europe and swipe my phone by beaming the NFC at contactless readers, do I make a EMV compliant transaction?  If this is possible then a little headache can be reduced.

  I think in addition to 44.7% US adoption rate of the EMV compatible cards that you showed in the inforgraphic, NFC based devices might help provide a surge in those Nos.
Pablo Valerio   Liability Shift Key to EMV Adoption in the US   6/24/2013 5:35:37 AM
Re: security to credit/debit grealty needed
@rdv, the 44.7% adoption rate is worldwide except the US. The US rate is relatively very small, and there are no published numbers.

At the moment I'm not sure about using your Google Wallet in Europe for NFC payments. I believe Google is using an intermediate card to process the NFC payments, and then charges your card. Google has recently made agreements with VISA and MC to be able to register their cards directly.
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zerox203   Liability Shift Key to EMV Adoption in the US   6/23/2013 9:43:56 AM
Re: security to credit/debit grealty needed
@JohnVerity,

This whole situation does raise some very interesting questions. If their european counterparts have found a return on ther investment, then why is cost the barrier here in the States? are there special interests at work, just different circumstances for the customer base, or entrenched systems that are harder to get rid of?

One also wonders how retailers and other middle-men are going to feel about being on the hook for these gaps in security. How does the law work to enforce culpability on them, and are they trying to fight it? This is really a very thorny area, especially when you factor in that you're dealing with individual citizens' financial security and even whole identities.
rdv   Liability Shift Key to EMV Adoption in the US   6/23/2013 10:34:40 PM
Difficult question to answer
Pablo,

    You mention that it could cost around $8 billion to revamp the card, while the fraud is of the order of $8.6 billion.  Its difficult to understand,

1> After spending $8 billion, the fraud will still be there but to what extent.

2> We believe, EMV technology is safe but over a period of time the hackers get hold of the loop-holes and drive the fraudulence.

3> With the technology changing so fast, what if after spending $8 billion in 2015, there is another super technology in 2020.  Why can't we build the system on the pre-existing hardware and software so that the spending and time can be saved miving further.
tekedge   Liability Shift Key to EMV Adoption in the US   6/24/2013 1:01:07 PM
Liability Shift Key to EMV Adoption in the US
Thanks for the interesting information. Any change is welcome to avoid credit card fraud, yeah i know everyone is skeptical of change as the hackers will get to it at sometime, but atleast there will be safety for sometime till they get to it. 

 
singlemud   Liability Shift Key to EMV Adoption in the US   6/24/2013 4:31:01 PM
Re: Liability Shift Key to EMV Adoption in the US
that is right, it is just like anti-virus software, hacker always find a new way to hack the system. But we ought to implment new measure to eliminate the old hacking ways.


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