The adoption of EMV in the United States is coming and it will affect the whole industry. Therefore, all participants will need to receive the needed information so they can understand how they will be affected by chip enabled payment cards.
EMV Adoption For Financial Institutions
Card issuers will need to think about what the implementation of smart card technology will require from them and evaluate the options they have to issue credit and debit cards that are chip enabled to their customers. Some of the top considerations for financial institutions are the education of cardholders about the use of new cards, whether to issue contact only or contactless cards, and which applications can be stored on the chip and updating the chip after it is issued.
Another consideration for financial institutions is the cost of the new cards, which can vary between $2 and $4, as opposed to a regular magstripe card which only costs around $0.15. While the difference in cost may seem considerable, financial institutions will need to see that the costs of issuing chip-based cards will be offset after some time by a reduction in the number of fraudulent transactions.
With the introduction of EMV, banks can expect to see a better potential to reduce card-present fraud. While fraud was always a concern among banks, revenue coming in as a result of card interchange made up for the losses. Now that the Durbin regulations have caused a reduction of interchange revenues, banks must find new ways to reduce their losses associated with fraud.
Card fraud liability is being changed also. Visa has recently announced dates by which all merchants will need to accept smart chip cards, otherwise their acquirers will be responsible for fraudulent transactions that occur at the point of sale. Due to these changes in policy, banks and merchants have strong incentives not to get left behind as smart cards are being deployed.
EMV Adoption For Merchants
All merchants, no matter whether they own just one location or are found all over the country, will need to make certain decisions. Currently, many merchants are getting the information they need and making plans as EMV is being adopted.
It will be the merchant’s responsibility to upgrade or replace their POS devices so they can accept smart cards. While the smaller merchants will usually go with solutions recommended by their acquirer, larger businesses will need to do their research so they can make an informed decision.
One crucial decision for merchants is whether they will deploy POS devices capable of a contactless connection. As contactless payments grow in popularity, merchants have an interest in taking advantage of this new technology so they don’t get left behind their competitors. A new EMV terminal’s costs will vary considerably depending on its functionality, quality, features, and the support provided. Many manufacturers of EMV-enabled equipment are making it easier for their products to be upgraded in the future without requiring a complete replacement.
Merchants will be responsible for working together with their acquirers and payment processors to figure out how the transaction messaging will work when it comes to EMV-based payments. It is necessary to know that during an EMV-compliant transaction, a larger amount of data is sent than during a transaction where only a magstripe was used.
As EMV is deployed, procedures at the POS will change. Some consumers may be unfamiliar with how chip-based payment cards, phones and fobs work and will require instructions on how to properly insert their cards or tap them over the device. Employees will need to be properly trained, so they can handle questions and concerns from customers, as well as explain the security benefits of EMV-based payments.
Merchants can see many positive benefits from EMV-enabled terminals, especially when it comes to contactless or mobile payments. They have the potential to speed up checkout time and make credit card processing more convenient to customers. Some new POS devices can send business offers to mobile phones, which can help increase customer loyalty.
The Impact of EMV Adoption For Consumers
For consumers, the change to smart cards will affect the way they make payments at a POS. They will require instructions on how to use their cards in the new terminals, either by inserting the card and entering their PIN, or tapping their card against the contactless reader. Merchants and banks will need to promote contactless payments as few consumers use them today.
According to a report made by Discover, less than 5 percent of consumers who have contactless cards actually use them for a contactless transaction. One highly positive aspect of the change for consumers is that as EMV becomes more commonplace elsewhere in the world, they will be able to use their cards in other countries without concerns of payment rejection. As all EMV-based equipment around the world follows the same standards, the chances of technical incompatibilities are significantly reduced.
EMV adoption is happening as Visa currently has set their first EMV adoption deadline for April 2013 and the next to follow October 2015. MasterCard has also set an April 2013 EMV compliance deadline for all US ATMs. The need to increase security during transactions and to minimize fraud is there, which has caused some of the big players in the payment industry to put out incentives so that financial institutions, merchants and acquirers migrate to EMV soon.