Remember how we approached communications failure in our last article?
The concept was to try to determine what would happen if a seemingly
unlikely event took place; a chance to sit back and say, “What if…”
And so, today’s topic is, “What if…card technology changed?” As
before, we can quickly note that card changes are not all that
uncommon. Store-based cards and single bank cards and library cards
evolved into BankAmericard and MasterCharge, which became Visa and
MasterCard. Magnetic stripes, with multiple tracks of industry
specific information, yielded to Track II and some overlaps, EMJ-etc.
Finally evolution and standardization brought smart cards and then EMV
cards. EMV (Europay, MasterCard, Visa) cards, just mentioned in our
last article as a way to handle loss of communications problems, are
Briefly, EMV cards are cards that are compatible with the EMV
specifications. The EMV specifications ensure worldwide
interoperability for smart payment cards. They define the interactions
between the cards and a chip-reading terminal. EMV cards are both POS
and ATM cards.
The main stated purpose of EMV cards is to prevent fraud. Regardless
of how fraud is calculated, each country’s experience is different.
But, it’s no surprise that European Union countries that are first with
EMV have the highest reported fraud levels.
EMV is not coming suddenly to the U.S. MasterCard and Visa have not
yet even defined an EMV compliance date. There may be several reasons
for this: Fraud is not as big an issue in the U.S. as in other
countries and the U.S. has an elaborate telecommunications network that
enables merchants to perform low cost, on-line authorizations. The
unspoken reason is that EMV costs a lot and U.S. Visa/MasterCard card
issuers either have not decided to pay that much or where to shift the
In Europe, the deadline for EMV compatibility is January 1, 2005.
Asia/Pacific is set for January, 2006. Middle East and Africa,
January, 2006. Of course, there are slight differences and
discrepancies between MasterCard and Visa.
There will be a shifting of liability for EMV cards. Currently, if an
Issuer authorizes the transaction and the merchant fulfills his/her
other contractual obligations of honoring the card, the merchant should
get paid. Even if the card is actually stolen or altered or skimmed or
otherwise dishonored, the merchant should get paid.
Beginning in 2005, the liability will shift to whichever party is not
EMV-ready. Think of it this way: Merchant Acquirers (ISOs) become
responsible for fraud if their merchants lack EMV compliant terminals.
And, of course, Acquirers (ISOs) typically pass those kinds of costs on
to their merchants.
The greatest impacts of EMV for U.S. ISOs will be both in technology
and in the relationships with their merchants. Every merchant who will
participate in the U.S. version of EMV will be looking at a new
terminal(s) that will read EMV cards and a straight forward
understanding of what the merchant must do and any new procedures. If
you sell POS terminals as a profit making business, be aware that the
terminals you will be selling should be EMV compatible.
For ISOs, there seems to be a best way to handle this, regardless of
when the U.S. gets around to complying with EMV. Being fully aware and
offering the necessary terminals and information will be a leverage
point both to your current merchant base and to the new base created by
those who delay or don’t offer this service.
It would be a good thing to be fully aware of EMV and what your
Processor expects to do and when. This may be only something on the
horizon, but it’s something for which you should know and plan. And,
because useful lifetimes of terminals and potential changes in
contracts are involved, EMV is something you want and need to know
Also, be aware that the entire EMV discussion began before the merchant
suit with Visa/MasterCard was settled. Whether requiring the merchant
to make necessary terminal changes to accept cards and shifting the
burdens of liability may not work in the post-suit environment.
Regardless of your sentiments on the matter, look at www.emvco.com to
learn more about what is coming. Be sure to keep in touch with your
Processor to be aware of their plans for EMV.
If you have a “What if…” type question, please feel free to send it to
me. I’ll try to fit your questions into these articles and give you a
thoughtful and innovative answer.
Let’s just say there are three guidelines:
Answers must be limited to the size of this column. That’s a nice
way of saying that questions that have long and detailed answers are
probably not subjects that can be addressed;
No questions like “How high is up?” can be fully and correctly
answered without significant artificial assistance, like lots of beer
or EMJ. Always remember, the world cannot end today, because it’s
already tomorrow in Australia; and
This column, as good as it may get, cannot replace a full study and
analysis. Again, a nice way of saying I probably can’t solve a
specific problem without seeing and knowing all of the details.