The conferences I have attended recently have all had a session where speakers or panelists opined on the state of EMV migration and its future here in the United States. Some of the panelists have been highly optimistic, admitting to the challenges the industry currently faces but confident the issues will be successfully resolved. Those on the other end of the spectrum have been downright dismissive of the effort and sometimes even the standard itself. Based on my research and some of the industry discussion I've heard, let me offer my perspective on the current and future state of EMV migration in the United States.
Terminal migration timeline
The difference in the timelines of ATMs and POS terminals for the liability shift to take effect was initially confusing to some but that confusion seems to have been resolved—although the difference of a year between MasterCard (2016) and Visa (2017) for the ATM is still a head scratcher. But it seems likely that both networks will agree on a common date before the end of 2014.
Much of what I'd been hearing indicated that there would likely be no rush for the merchant community to upgrade their terminals to meet the POS liability shift timeline, currently scheduled for October 2015. Something tells me that many will choose to ignore the liability shift date altogether. The unresolved Application Identifier (AID) battle currently being fought among Visa, MasterCard, and the debit networks is a major factor in both the debit card issuance and POS terminal decisions. Many of the major merchants and their industry associations have not been big fans of EMV, apparently because of a variety of control, financial, and technical reasons. Understandably, merchants are attempting to consolidate their terminal upgrade efforts to support both mobile payments and EMV, so they would prefer to put off major terminal purchases or upgrades until there is a final resolution of terminal requirements for both technologies.
When U.S. District Judge Leon delivered his July 31 ruling that the Fed's Regulation II debit card transaction routing requirements did not meet the legislation's intent, it seemed that there was a greater likelihood for EMV development efforts to be placed on hold until there is a final routing rule.
Card migration timeline
Based on comments I've also heard at recent industry conferences, many of the major card issuers' replacement plans seem to be focused on card replacement for international travelers and high net worth/private banking clients rather than a wholesale card replacement effort. This issuance policy appears to be more to ensure operability when traveling to an EMV-converted country than to take financial advantage of the liability shift. Again, it seems highly likely that Judge Leon's ruling will suspend any major debit card replacement efforts until there is a resolution on the routing rules and the related AID solution.
Risk impact
Although it's normal for any major technology change to have its starts and stops, its advocates and critics, we must not forget that delays in finding a viable business solution for counterfeit card fraud only increases our risk profile through higher fraud losses and erosion of consumer confidence. We will be back to write more on this topic in future Portals and Rails posts, but for now we'd like to hear your thoughts.
By David Lott, a retail payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed