As the October 1, 2015, date for EMV liability shift looms, it seems like everyone is gearing up for this momentous event. Banks are issuing new EMV chip cards, merchants are installing new terminals, cashiers are receiving new instructions, and so forth. Everyone is getting ready — except us consumers. Many of us have received our new cards (I got mine just last week from Chase) but are not quite sure why they were sent since the old ones haven’t expired, and we wonder how the in-store shopping experience will change. I was trying to explain it to my neighbor yesterday when he interrupted me. He said, "Pretend you are explaining it to my grandma, because I will need to relay it to her. What are the top five things she will need to know about the new EMV cards?" OK, so here goes:

  1. EMV is designed to reduce in-store fraud. The chip in the EMV card is designed to prevent most counterfeit card fraud because the information it contains is dynamic. When used in stores, the chip "talks with the terminal" to authenticate the card and complete the transaction. If the magnetic stripe on a card is used, then the terminal is reading static account information that can be easily copied to make a counterfeit card. EMV cards can't help with online transactions because the chip is not being used.
     
  2. Not all merchants will use the chip, at least not right away. Some merchants will ask you to "dip the chip," which is industry lingo for "use the chip." Other merchants will continue to use the magnetic stripe to "swipe" a transaction the old-fashioned way. Big chain stores such as Walmart, Target, and Home Depot have announced that they will install EMV terminals. The local dry cleaner or bakery is likely to continue to "swipe" transactions. The pumps at gas stations won't be updated until 2017. It is important to understand that when fraud occurs on a magnetic-stripe card today, the issuing bank bears the cost. However, with the EMV liability shift on October 1, the fraud liability cost can shift to the merchant, depending on who is the weakest link in a transaction. If an EMV chip card is "swiped" at a merchant starting October 2, all fraud costs related to that transaction will shift to the merchant because it is not using the chip to authenticate the card. If the merchant uses an EMV terminal with an EMV card, then the fraud liability will stay with the issuer (the fraud will be greatly reduced, however). Because of the liability shift, large chains such as Walmart have a financial incentive to upgrade their terminals to accept EMV cards despite the cost of the upgrade. Unfortunately, in-store card fraud is likely to shift from the big chains to small merchants who may not be aware of the pending liability shift or cannot afford to upgrade their terminals.
     
  3. When you "dip the chip," the transaction will take longer. You will have to wait for the cashier to ring up the transaction before you can use your EMV card. You insert the card into the reader, or "dip the chip," and leave it in the reader until the transaction is complete. This means a few more seconds may be added to the transaction. See the graphic below on how this will work.
     
  4. Signing or entering a PIN for the transaction depends on your bank. Most banks have opted to have consumers sign for the transaction as currently done with a credit card purchase. However, a small number of banks have issued PINs, requiring their customers to enter a PIN to verify the transaction. This step depends on the bank. I suggest you read the literature that came with your new EMV card. (You can also check out Javelin's latest report on customer education.)
     
  5. Don't forget your card. We are accustomed to quickly swiping our cards, then putting them back in our wallets. Now that we’ll be required to leave new EMV cards in the terminal for the duration of the transaction, there’s the likelihood that some of us will forget to remove the cards after the transaction is complete.

 

Author

About Michael Moeser

Michael heads Javelin's payments practice. He advises clients on the rapidly changing payments industry. Michael is focused on tracking the evolution of the payments industry, covering specific areas such as person-to-person payments, U.S. and global EMV card migration, digital wallets, merchant acceptance of different payment forms, cross-border payments, real-time transactions, and digital payments.

Michael specializes in assisting clients in developing new payment products or repositioning existing services to capitalize on market opportunities, understanding how to market to particular consumer and small business market segments, and developing new corporate strategies that can transform an existing payments franchise.

Michael brings over 20 years of experience from the payments and consulting industries. Before joining Javelin, he led the international small business card portfolio at Visa, launching new and growing existing debit and credit card programs with banks and financial services companies across the globe. Previously, he was the Head of Competitive Intelligence at Capital One, a Payments Knowledge Expert at McKinsey’s Payments Practice, and the Head of Product Marketing at Ondot Systems, a Silicon Valley mobile card control startup. He has presented to audiences around the globe, primarily at Visa and McKinsey client and public audiences.

Michael holds a BBA in finance from the Ross School of Business at the University of Michigan and an MBA in marketing and entrepreneurship from the Kellstadt Graduate School of Business at DePaul University.

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