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Discover Financial Services is the latest card network to announce a conversion plan for the secure EMV chip-card standard in the U.S.
March 15 -
The U.S. is already lagging other countries in its conversion to a secure chip-card format. And if Canada is any example, the U.S. may continue to lag despite the aggressive deadlines set by the card networks.
March 8
Industry debates centering on the eventual U.S. conversion to the EMV chip-card standard have paid little attention to whether consumers understand their liability when using the new card format.
One major debate has been around whether to require the use of a PIN, as is common for EMV cards in other countries. Questions remain about liability shifts based on whether the merchant or acquirer is providing the most secure technology, particularly since Discover Financial Services (DFS) did not declare a stance on that issue in its
Consumers may not monitor their accounts closely enough to adhere to liability policies should unauthorized use of their EMV cards occur, says the Merchant Advisory Group, a vocal proponent of chip-and-PIN as the only reasonable option.
Networks and issuers may be pushing consumers toward chip-and-signature with "zero liability" policies, but such provisions come with some caveats, says Mark Horwedel, chief executive of Minneapolis-based Merchant Advisory Group.
Banks may hold consumers accountable for fraudulent transaction costs, even when EMV is in place, if they fail to report illegal transaction activity well past the federal deadline of 60 days, he says.
In the current world of mag-stripe cards, the card networks initiated zero liability policies to protect consumers even further than federal regulations. MasterCard Inc. (MA) and Visa Inc. (NYSE:V) both do not hold cardholders accountable for fraudulent transactions, though MasterCard's policy does not cover PIN transactions.
Visa covers PIN transactions processed through its Interlink point-of-sale debit network, and encourages cardholders that signatures best protect their purchases. Some but not all issuers will provide similar liability protections for PIN-based transactions processed on other debit networks.
Industry experts do not foresee the networks changing those policies, especially with a favorable leaning toward PIN, when EMV becomes the standard.
"The banks feel consumers are well-protected on signature-debit transactions," says Patricia A. Sahm, managing director at Auriemma Consulting Group. However, banks in the post-Durbin era realize debit transactions are not much of a money-maker, and that may possibly result in adjusting policies, she adds.
"There was an advantage in running debit transactions with signatures so they could run on the credit [network] rails rather than the debit [PIN-network] rails" because of the higher interchange income, Sahm says.
The Durbin amendment, however, essentially halved the signature-debit interchange revenue for issuers and made the differences between signature and PIN rates minimal.
Just because EMV technology is designed to reduce fraud, issuers would see no justification to change liability policies that might somehow negatively affect consumers, says Beth Robertson, director of payments research at Javelin Strategy & Research.
"I understand why merchants would have concern for the consumer who might be unaware of a fraudulent transaction, but the merchants have a greater liability concern if they don't have EMV technology in place by the 2015 deadline established by the networks," Robertson says.
