The following is an excerpt from "Preparing for EMV in the United States," a white paper available for free download after registration.
EMV in the United States is on the road to becoming a reality and with it will come equipment and software upgrades, among other costs. Although there aren’t deadlines set in the U.S. for EMV deployment, waiting could compound the risk of not being prepared should such deadlines be implemented.
For independent ATM deployers in the U.S., a major step in making the switch to EMV will be installing new hardware. Part of that includes outfitting the machine with a card reader that accepts and reads the chip embedded on the card.
Another part of the process involves installing new software. For some older machines, a software upgrade may not be possible; meaning the machine itself will have to be replaced.
One of the first steps that occurred in Canada in preparation for EMV was a requirement that new ATMs be EMV-capable. The next was to require that 50 percent of an IAD’s installed base be made EMV-capable by the end of 2010.
IADs faced fines for failing to meet the 50 percent goal, with fines starting at $100 per machine. Those who fail to meet the goal by the end of 2011 will face a $500-per-machine fine.
“What happened in Canada was that many people waited to meet the 50 percent deadline because they weren’t sure that the dates were real,” said Shaun King, vice president, international sales with Triton Systems and ATMGurus. “They then came to the manufacturers in October or November, and demand outstripped supply. People were scrambling to get their ATMs upgraded and the parts they needed were out of stock.”
Why make the switch?
Fraud costs the U.S. card payments industry an estimated $8.6 billion yearly, or 0.4 percent of the $2.1 trillion in card volume annually, according to the Boston-based consulting firm Aite Group LLC. And as the card industry in other parts of the world become more secure, payment card fraud has increased in the U.S.
On the other side of the coin, there are more than 400,000 bank and independently owned ATMs, 2 million payment card terminals and 600 million credit and debit cards in the U.S., all of which would need at least some modification. U.S. financial institutions would need to spend at least $8 billion making the switch to EMV.
For example, a magnetic-stripe card costs 19 cents compared with $1 for a chip-and-PIN card, according to Needham, Mass.-based research firm TowerGroup. The cost of upgrading the U.S.-based ATM market is pegged at nearly $500 million and the cost of upgrading U.S.-based POS terminals is estimated to be nearly $6.8 billion.
Ultimately, then, it comes down to balancing fraud losses with the cost of making the switch to EMV. However, an August 2011 initiative by card issuer Visa may be the tipping point for making the move to EMV.
The key point of the Visa initiative, the counterfeit fraud liability shift, essentially means that after October 1, 2015, merchants who fail to invest in EMV technology will be liable for any fraud that occurs if that fraud could have been prevented with EMV.
“Dynamic authentication is the key to securing payments into the future,” said Ellen Richey, chief enterprise risk officer at Visa Inc. “Adding dynamic elements to transactions makes account data less attractive to steal and takes more merchant systems out of harm’s way, shrinking the battlefield against criminals. The migration to chip technology will be an important security layer and a critical step in a comprehensive strategy to use dynamic authentication across all markets and all channels.”
In addition, as other countries adopt EMV in their own markets, travelers to the U.S. will find that they can’t use their cards in U.S. machines, and vice versa for those traveling from the United States to Europe and elsewhere.
“Eventually, you will see a push from consumers,” said James Phillips, vice president of sales and marketing with Long Beach, Miss.-based ATM manufacturer Triton. “They’re going to be calling their banks wanting to know why they can’t use their ATM cards in those countries. It’s going to become a burden for those customers.”