The U.S. is roughly two years into its migration to chip payments, but in the last few months I have seen the tide turn and this migration start to really pick up speed. But before I talk about where we are now, its important to understand where we have been and how we have arrived here.
From its onset, the U.S. migration to chip payments has been unlike any of the 80+ other countries that have implemented the technology. To start, there is no mandate governing our migration. Rather, it is voluntary and requires the participation, cooperation and coordination of all industry stakeholders.
The U.S. payments market is also drastically different from other markets, making comparisons to other implementations difficult.
To say that our payments system is complex would be an understatement. With over 12,000 financial institutions that issue cards, an estimated 1 billion cards in the market, over 12 million point of sale devices in retail stores, and another 100,000 ATMs installed, the U.S. payments market is larger than all of Europes payments markets combined and the largest individual market to convert to chip cards.
Implementing EMV on the debit side adds even more complexity. The U.S. has 19 debit networks for PIN debit card transactions and also needs to comply with the 2011 Federal Reserve Rulemaking (Reg II) interpretation of the Durbin Amendment under the Dodd Frank Act.
Legal action on this interpretation and court decisions led to more uncertainty: how do we implement EMV chip technology for debit transactions when regulations could change? Though many organizations voiced commitments to moving forward despite uncertainties, others took a wait and see approach.
Wait and see turned into act now this past December and January when retailer breaches affected millions of consumer accounts. With these breaches, we saw how much damage could be caused if retail networks were to continue processing magnetic stripe payment data.
These breaches reiterated the need to move to secure chip cards to devalue financial data and instilled a renewed sense of urgency in our migration. MasterCard and Visa reaffirmed their October 2015 fraud liability shift dates, and both issuers and retailers announced their commitment to follow through on their investments in secure EMV chip cards and card acceptance terminals.
Now, the dark cloud that has hung over debit has begun to dissipate. Starting in March, we began hearing announcements of licensing agreements between regional debit networks and global payment brands on the use of common EMV debit application identifiers (AIDs).
To help further propel EMV debit implementations, the EMV Migration Forum has defined, and will very soon release, an industry-supported debit framework. This framework provides a future-proofed approach for the debit card processing scenarios we know of today, so debit industry organizations can build their own detailed specifications and continue on the way to chip implementation with confidence.
With issues regarding debit on the way to being cleared, I dont foresee any more major hurdles on our path to chip payments. I can offer some thoughts to consider in moving forward:
Strive for chip-on-chip transactions.To date, an estimated 17 to 20 million chip cards have been issued to U.S. consumers, and millions of chip-capable terminals and ATMs have been installed, some of which are accepting chip cards today. In the next two years, Id expect to see nearly half a billion chip cards and triple the number of EMV-capable terminals in the field.
These numbers hold significance, but we will see the true measure of this migration when we get to the point where most of our transactions are chip-on-chip a chip card used on a chip-enabled payments device. Chip-on-chip transactions ensure the highest levels of counterfeit fraud protection for all parties involved.
Expect a mix of cardholder verification methods [CVMs]. Because the U.S. is the only country where counterfeit card fraud continues to rise, reducing in-person counterfeit fraud and devaluing U.S. payment data are the main goals and benefits of chip payments. To get there as quickly as they can, some card issuers will implement signature as a cardholder verification method, while others will implement PINs. This mix is in line with what consumers experience today, and keeps us moving forward towards the goal of increasing chip-on-chip transactions and hastens the end of the magnetic stripe.
Complement the chip.EMV chip is a key piece in a layered approach to securing our payments infrastructure, but not the only piece. Layering security with complementary tools like tokenization, end-to-end encryption and PCI DSS compliance is necessary to build up our defenses and fight other types of fraud, like card-not-present (CNP) fraud.
Move forward together. A successful move to chip means cooperation and coordination on the parts of every member of our payments ecosystem. I am encouraged by the payments industrys recognition that we need to move to chip technology quickly, and by the fact that chip cards are being issued now and retailers are moving to put in place the chip-enabled terminals to begin accepting chip transactions by the industrys target dates.
If you arent part of this group, I urge you examine your migration roadmap and determine the best ways to get your organizations moving quickly towards chip payments and keeping pace with the industry.
Randy Vanderhoof has been the executive director of the Smart Card Alliance since 2002.
