Visa is the first to admit that a lot of progress has been made in the U.S. EMV migration over the last seven months. Today, there are 300 million chip cards in circulation and 1.2 million EMV merchant locations.
It's also the first to say that there could and should be more places for consumers to use their chip cards.
Terminal certification has, so far, been a big barrier to making that possible, and the hue and cry across the ecosystem over the EMV certification backlog has now reached a fever pitch. Merchants who thought that they were doing the right thing by upgrading their terminals by the October liability shift realized that just having an EMV terminal on a counter was just the very first step. Certifying that terminal to ensure that it could support an EMV transaction turned out to be a lot more time-consuming than they — or anyone — anticipated and/or was prepared to handle expediently. The more complex the merchant environment, the longer that process could take.
The result has been, more or less, akin to the snake swallowing the elephant, as merchants tried to work their way through the long and tedious certification backlog. And the (costly) rub is that, even with those terminals in place, if those terminals aren’t certified, they can’t be used to process an EMV transaction. Since Oct. 2015, the cost of counterfeit fraud on chip cards is not absorbed by the issuer but the merchant, even if there is an EMV terminal on their counter.
Visa announced a series of initiatives yesterday (June 16) designed to change that — to simplify and accelerate the path to certification — and blunt the impact of up to 15 percent of chargeback volume for the next 20 months in order to give the ecosystem time to catch up.
Visa’s Quick Path To EMV
Mark Nelsen, SVP of risk products at Visa, told Karen Webster yesterday that there are four main elements to Visa’s approach: (1) streamlining testing requirements, (2) amending and simplifying the terminal certification process, (3) providing technical expertise and funding to acquirers and VARs and (4) changing the chargeback rules for merchants that are not yet chip-ready.
These new testing and certification initiatives, Nelsen said, will allow a merchant to reduce its testing and certification timelines by as much as 80 percent.
The Big EMV Software Certification Push
Visa has simplified its testing requirements to significantly reduce the complexity, time and cost of implementation. Visa has also opened up a path that allows acquirers to “Self-Certify,” meaning Visa will give acquirers greater discretion to determine the appropriate level of testing required to ensure a merchant’s solution is ready. The logic behind that choice is that an acquirer will know its partner merchant’s system better than anyone and thus is ideally positioned to cut down wait times. Visa is also exploring how acquirers can share certification test results with each other to avoid testing duplication.
Visa’s new initiatives also include funding to support this new testing and certification program for acquirers and VARs that develop the software to power chip terminals and pre-certify their software solutions. Visa will field a team of EMV experts who will provide technical support and training as needed.
Changing Chargeback Economics
While the EMV testing and certification process is working its way across the U.S. payments landscape, Visa will also limit the number of transactions issuers can chargeback to merchants (and their acquirers) until April 2018.
As of July 22, 2016, chargebacks under $25, due to U.S. counterfeit fraud, will no longer be charged back to merchants. Visa will block all U.S. counterfeit fraud chargebacks under $25. In addition to the dollars lost to fraud, the time and cost associated with managing those chargebacks is also onerous for merchants. As of Oct. 2016, Visa will also limit issuers to charging back 10 fraudulent counterfeit transactions per account. After that point, the issuer assumes liability.
Visa estimates these two changes will cause merchants to see 40 percent fewer counterfeit chargeback transactions and a 15 percent reduction in U.S. counterfeit fraud dollars being charged back.
The Online/Offline Conundrum
The driver of these changes, Nelsen said, is a recognition that the terminals that are in the market today — and in line for testing and certification — are terminals that provide chip functionality for situations that the U.S. market does not need, namely, offline authorization. That, he said, is what's creating a great deal of the complexity and the time it takes for merchants to get through the testing and certification process.
“Chip has a lot of functionality,” Nelsen emphasized, “but a good portion of what chip enables is not necessary for the U.S., because in the U.S. marketplace we have zero floor limits. Which means every transaction goes online for an authorization."
Making offline authorization a nice-to-have-but-not-essential element for getting up and running with EMV.
Making Things Less Complicated
"We need the card to generate a cryptogram when it is inserted into the terminal so that the issuer can determine that it’s a genuine card. Then, the cardholder can sign or enter a PIN as usual. Beyond that, everything else is a nice to have but not essential. We're not saying that the merchant can't deploy a more complex EMV solution; we’re just saying it's not necessary," he emphasized.
Nelsen told Webster that the ideal solution to streamlining the EMV testing and certification process would be to streamline the terminals being deployed and certified so that they are online-only terminals. Streamlined terminals are faster terminals, he pointed out, easier and faster for merchants to deploy.
"If we focused on these online-only terminals, which provide the merchants with all of the fraud protection that they need, it provides all the security protection that the issuers need. If we just focused on these streamlined, simplified terminals, then that alone would accelerate the testing and the certification process," Nelsen said.
But, Webster asks: Why wasn't this done at the beginning?
Getting alignment across a very complex payments ecosystem isn’t easy, Nelsen remarked.
"Visa has always, for the last four years, been trying to promote the online-only terminal and configuration. We haven't had 100 percent alignment across what should be implemented in the marketplace," Nelsen said, suggesting that this is an idea that might, in fact, be starting to gain more traction.
Absent that, and more immediately available, there’s always software and funding to move things along right now.