All eyes are on the Oct. 1 EMV liability shift deadline – but where does the U.S. really stand and what can the payments ecosystem expect to see over the course of the coming years? Stephanie Ericksen, VP of Global Risk Products at Visa Inc., sat down with MPD CEO Karen Webster to discuss Visa’s take on the lay of the EMV land.
KW: Give us your perspective on the EMV migration in the U.S. At this point in our migration – and compared to other countries around the world – how would you grade us – and why?
SE: We are really encouraged by what we've seen.
When you take into consideration the complexity of the U.S. ecosystem with more than 10,000 financial institutions and many millions of merchants locations, where we are at this point in time leading up to the liability shift date we are very much where we expected to be.
From a Visa perspective, as of the end of August we had roughly 142 million Visa chip cards in market, marking a huge growth compared to September of 2014, when we had about 20 million. Seeing the jump from 20 million chip cards this time last year to over 140 million chip cards in one year is a significant amount of progress. On the merchant enablement side, this time last year we had 55,000 merchant locations ready to take chip transactions - at the end of August 2015 we had over 300,000 merchants EMV chip ready. There will also be even more merchants turning on throughout September and October. So, not only is this a massive amount of progress over the last year, there’s a great deal of momentum that’s been built up heading into the month and years following the liability shift date (October 1st).
It is important to understand that this process takes time. From what we've seen from other markets around the world, we know that it takes a few years after the liability shift date to reach significant levels of adoption of chip cards being used at chip terminals. Based on experience from the Australia, Brazil and Canada and considering their implementations of EMV chip, it took about two to three years after the liability shift date to get to roughly 60 to 70 percent of their domestic payment volume being chip-on-chip. Ultimately it took nearly four to five years after the liability shift date for those same markets to reach greater than 90 percent chip-on-chip adoption.
KW: What has done better than you thought? What could have gone better – and why didn’t it?
SE: Over the last few months a lot of the major retailers have been really fine-tuning their acceptance process for implementing chip in their lanes, particularly at the multi-lane retailers. It has also been encouraging to see an increase in the training of the sales associates, who have proven to be very well-trained on how to process a chip transaction and very much aware of how to recognize a chip card during the transaction testing we have done. These associates are also capable of teaching consumers how to do a chip transaction, so it’s great to see that the retailers and merchants really understand how chip technology works once they turn it on and they've done a great job of training their staff, too.
There’s been similar progress on the issuing side, with many issuers being ahead of the game in terms of getting chip cards enabled, training cardholders and sending out improved materials that indicate to a cardholder what’s different about a chip card and how to use it at the point of sale (POS). Overall, there has been great industry collaboration when it comes to EMV education and awareness through the various websites and materials being distributed.
But what will still be a challenge is debit.
The U.S. certainly has a complex debit environment, so it’s no surprise that debit is something that’s taken a little bit longer to get up and running. However, there’s been some great momentum in debit chip card issuance over the last several months as well as debit enablement via the Common AID acceptance at merchant locations. While it was a bit slow in the earlier days of the EMV migration journey, we've seen much progress in recent months.
KW: Everywhere in the world that there has been the shift to EMV, it has taken years. Some say that it might take the better part of the next decade to make the total switch to chip cards in the U.S. How do you see the next 5 to 7 years evolving? What will Visa be focused on to continue the momentum and why?
SE: Visa is doing a lot to educate the key stakeholders. Our goal is to make sure consumers, merchants – and small business merchants in particular – as well as the broader industry as a whole are well aware of how the migration is going.
Everyone who has been discussing chip within the industry is well aware that security is a multi-layered approach and that there is also a need to go beyond EMV chip to end-to-end encryption, tokenization, sharing data across the ecosystem and investing in predictive analytics fraud scoring models to help prevent, detect and drive down fraud in all channels. Those are things we have and will continue to educate people about, because chip is not a silver bullet. While we’ve seen tremendous progress with respect to EMV, and expect that to continue, we know that we still need to invest and proliferate other technologies, particularly in other channels.
[bctt tweet="Payments security is a multi-layered approach, @VisaNews explains why EMV chip is not a silver bullet"]
So, over the course of the next few years I expect to see the ecosystem continuing the momentum of chip as well as more contactless enablement. Many of the terminals that are going out now are accepting not only EMV contact chip cards but also contactless, whether it's for mobile acceptance or also potentially for contactless cards.
Some issuers are talking about getting through this first wave of card issuance and then potentially looking at dual interface and contactless enabled cards - in addition to EMV - for increased speed and convenience. This would allow consumers and retailers and issuers all to take advantage of some of the mobile acceptance infrastructure that's beginning to grow. Continued development on the acceptance side of new technologies, particularly for mobile, is something we can expect to see going forward, too, which has the potential to change how the card experience happens if more contactless enabled cards are issued.
KW: According to your latest stats, there are 301,000 EMV terminals in the U.S. – out of 6 million merchants. We have a lot of ground to cover still! Visa subsidized mag stripe terminals when merchants moved to electronic payments, and the PIN networks did the same when PIN debit was introduced. Is there a reason that Visa didn’t adopt a similar approach with respect to EMV/NFC terminals?
SE: Moving to chip now in the U.S. is really at a very different price point than it was for many other countries at the time of their migration. The price point for chip enablement has actually decreased a great deal in recent years, especially compared to some of the earlier markets that moved to chip technology. For the markets that migrated to chip years ago, the price of chip terminals could reach several thousand dollars each.
Our data shows roughly 30 to 40 percent of the terminals in the installed based in the U.S. today already have chip hardware but may still need the software enabled. But on the small business side, in particular, there have been positive comments from local chambers of commerce, small business processors and the small businesses themselves about the ability to get chip terminals in the neighborhood of $100. There are even some incentives available to help merchants receive terminals at much lower costs or even for free.
There are also multiple suppliers out there who provide discounted devices, such as Square's $49 reader or the mini terminals being offered for $100 to $200. We've heard many encouraging comments and stories from small business merchants across the country that have been able to chat with their processor or even switch processors to get inexpensive or free terminals, with it sometimes resulting in an even better processing contract.
In general, it’s been a rather straightforward enablement on the small business merchant side. While there is still more work to do for merchants with multiple locations, there have also been some great integrated POS systems out there that they have been able to take advantage of. We spoke with a local pizza parlor owner in Charlotte, North Carolina, recently who had an EMV chip system put in place and she was very encouraged by how it has helped to not only accept secure payments but also run her business a little bit more smoothly. There is a lot of positive progress to report when it comes to that.
KW: How does Visa view the role of EMV in paving the way for payments innovation in the future?
SE: Going back to our discussion earlier about mobile and contactless payment, we are seeing many merchants enabling both contact EMV as well as contactless in an effort to accept Apple Pay and eventually Android Pay and Samsung Pay. A lot more of that technology is already becoming more common, and consumers are looking to try these different mobile payments to become more familiar with them, which drives them to ask merchants if they can use mobile enabled payment application at their location. In turn, merchants are now more aware due to consumer interest, so we are seeing an increase in the number of merchants looking to enable both contactless and EMV when they upgrade at the POS. We expect this trend to continue, especially through the increased adoption of mobile provider payment methods out there in market like Apple Pay, as new payment technologies become even more popular with consumers and eventually merchants will begin to enable for that as well.
KW: What will the world look like on October 1, 2016? What progress will we have made? What part will Visa have played in moving things forward?
SE: As we head towards this time next year, I believe we will see a lot more debit enablement. Credit has continued to lead in terms of chip card issuance and acceptance at the POS, but we expect to see debit solutions becoming more available on the card side as well as on the merchant acceptance side. I think credit and debit will be a little bit more evenly matched in terms of the amount of cards and transactions as well as the number of enabled locations out in market. One key distinction I think we will see is more progress in terms of actual implementation and issuance on the debit side.
Visa will continue to work with our partners to monitor what's happening with innovations in payments, as well as how things continue to progress as we move to innovation in mobile, biometrics and the many other ways in which we are authenticating the consumer. But mostly we will continue our efforts to educate that the consumer has zero liability, can continue to use their magnetic stripe card and if they don’t have a chip card, they may call their issuer to receive one.
Overall it’s going to be a multi-year process and that's certainly what's to be expected.