EMV in the US, a 12 BILLION Dollar Mistake

In continuation of my crusade against EMV in general, the card schemes have announced an end to issuer-only fraud liability for non-chip transaction starting in October 2015. The so called ‘liability shift’.

For those who don’t know, it’s the issuers of the credit card that accept the liability for fraud during a branded credit card transaction, which is why they receive the lion’s share of the fees associated with the transaction (interchange fees). But now, if the merchant does not upgrade their point-of-sale terminals to those capable of accepting chip cards, it’s the merchant who suffers the fraud loss. Same thing goes for a consumer who wants to continue using swipe  & signature cards.

While I assume that those with disabilities, and / or the elderly will be given the option to not change to chip & PIN, the fact remains that the enormous cost of the transition to this ‘new’ technology will not be born by those who have basically created the problem over the course of over 60 years; the card brands. It will be the consumer …eventually, because the merchants / retailers will have to re-coup their up front costs.

And all this just to keep taking credit cards!

Why do retailers and banks STILL see credit cards as the only form of non-cash payment? Why DO the card brands have so much power over end-user payments technology when there are ‘only’ ~6 billion credit cards in the world and >7 billion mobile phones? On top of that, mobile phones have a far wider distribution than an EMV infrastructure can EVER hope to duplicate, and you have what I would see as a very simple choice in how to transition away from plastic.

I’ve said it repeatedly; payments is NOT about the FORM of payment, it’s about authentication of the individual to the organisation holding the funds (usually a bank), and NO form of account-detail-up-front (read credit card number, even a token of one) can ever be as secure as one protected by proper identity management. Yes, even on a mobile device.

What the US retailers are going to do is spend an absolute fortune on a payment acceptance technology that will be impossible to upgrade to anything else, nor will it be anywhere near as flexible for those retailers wishing to innovate in new forms of value-add services and marketing drives.

I have no problem with the card brands making a ton of money, that’s business and they do have a lot to add in the payment arena, but to continue the push for EMV is as horrendously self-serving as it is pointless. If it’s not them pushing for it, and it’s actually the Fed, then THEY should do their homework and talk to the retailers.

However, if the retailers aren’t going to do anything about this, then it pretty much serves them right.

For example; What card brand or issuer is going to tell Walmart that they can’t use an EMV alternative that has been shown to have a similar security profile AND infinitely greater business benefits? Can you really see them giving up a multi-million dollar revenue stream just to enforce a patch on a 60+ year old technology?

No, neither can I.

3 thoughts on “EMV in the US, a 12 BILLION Dollar Mistake

  1. Very good post. I would add a few points:

    Not only the cost not born by the card brands or issuing banks, but they are also not offering to discount their “rates” they charge the consume via the merchant for this shift. For years, the cost increases in transaction fees the card brands have claimed are partially based on the cost of fraud. Now that liability is shifting, it is amazing the card brands and issuing banks still expect to charge the same fees for a liability they no longer have.

    As for the issuing banks, their system costs are sunk costs; they already have to update their systems to support EMV or they lose their customers that travel outside the US. So “liability shift” simply helps them fund this change.

    Finally, one has to ask who owns “EMV”? It certainly is not US retailers that earn the licensing fee for every EMV chip card produced.

  2. My two cents:

    Credit cards are still the most universal form of payment. Sure, you’ve got that many mobile phones out there, but guess what, you’ve also got multiple formats currently existing, none of which are compatible with each other. I’ve got two different Japanese e-wallet apps on my phone, and neither of them are usable outside it. Google Wallet won’t install on my phone because the chip technology just isn’t compatible. My credit cards are swipe, wait, sign, go.

    When a shop outside the US insists on a chip card, guess what, out comes my Canadian debit card instead of arguing about how their merchant agreement requires that they accept it because guess what, there are processing companies outside the US that charge extra to take a card without a chip and put all fraud liability on the shop. Sure, there’s always cash, but I’m already set in my mostly-cashless ways, not to mention the horrendous commissions the exchange shops take. Sure, a basic Canadian checking account costs $4/month for 10 debit transactions a month but I’ve had it with all this foolery and people pushing back against getting the US caught up with the rest of the world.

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