NEWS ANALYSIS: A new report shows up to 70 percent of U.S. credit cards will have EMV chips by 2015. But merchants must convert POS terminals and train staff to use them.
The good news for companies that accept credit cards is that most banks will be issuing credit cards with EMV chips
well before the coming liability shift in October 2015.
The bad news is that merchants that don't accept EMV (Europay, Mastercard and Visa) chips will have to absorb the cost of fraudulent transactions due to counterfeit credit cards.
Previously, banks had absorbed those costs. EMV chips are microprocessors embedded in cards
that make counterfeiting the cards virtually impossible.
That means that companies that accept credit cards at point-of-sale (POS) terminals will have to either buy new terminals or they'll have to enable the EMV chip readers on the terminals they already have.
The surprising news is that the majority of card issuers will use chip-and-signature cards rather than chip-and-PIN cards. Chip and signature cards protect against counterfeit credit and debit cards, but not against fraudulent use of lost or stolen cards.
The worse news is that the fraudsters are well aware of the coming use of cards with EMV chips, and will change their focus to online merchants and to financial institutions that have not made the change to the new cards.
"Credit card fraud changes," said Julie Conroy, research director for the Retail Banking and Payments Practice at the Aite Group. "Organized crime rings aren't going to sit and watch their bottom line go away. We'll see a shift to card-not-present and application fraud."
Conroy prepared a report from the Aite Group that determined that about 70 percent of cards in the U.S. will have EMV chips by 2015, with most card issuers sending out such cards in the fourth quarter 2014 or first quarter 2015.
"We're racing to get ahead of card-not-present fraud," Ellen Richey, chief enterprise risk officer and chief legal officer for Visa International, told eWEEK
. Richey said that Visa has developed a process called tokenization that can help prevent card-not-present fraud.
"The card-not-present channel has a technology called tokenization that changes the card number into a different number that can be limited in its use," she said. "Once you do that, the value of the token is much less than the value of the card number, and you can make it useless for other kinds of transactions. It makes it much harder to use the data."
Richey said that Visa has donated the tokenization method to EMVco
, which is the company that developed and manages the standards for EMV chips. By doing this, Visa has made it possible for any card issuer to use tokenization
and do it in a standards-based way.
Debit cards are somewhat further behind in their move to EMV chips. Most of the delay has been due to a federal court decision that held that the Federal Reserve had exceeded its authority when it set up routing procedures for debit cards.