The Less-Than-Optimal EMV Chip Credit Card Transition

At Quartz, Ian Kar analyzes the EMV rollout in the United States. EMV (which stands for Europay, MasterCard, and Visa) is a technical standard for smart payment cards with information stored on integrated circuits (as opposed to, or in addition to, magnetic strips).

Kar paints a vivid picture of the confluence of regulatory and contractual issues involved:

The US implemented something called a “liability shift”—essentially, if retailers didn’t support chip card payments by buying a new, expensive machine, they’d be held accountable for any sort of fraud that occured in their store. Usually, that’s the bank’s responsibility. So, as long as retailers purchased the new chip-card reading terminals, liability would shift back to the bank. In a July report on the chip card transition in the US, the Aite Group, a financial services research firm, cited a lack of mandate in the US as one reason the chip card transition has been so confusing.

The liability shift date in the US was Oct. 1, 2015. But, when the date rolled around, shoppers were hard pressed to find a chain retailer that actually supported chip cards, let alone a mom-and-pop shop. In a letter from industry trade group Food Marketing Institute asking credit card companies to postpone the liability shift, the group wrote that as of April 2015 retailers were experiencing four-month delays just waiting for their new terminals to arrive.

And just because shops finally got new terminals didn’t mean they’d immediately start accepting chip cards. Their payment processors needed to certify their systems were still compliant and working correctly before the chip readers could be turned on. Even in 2016, they can only do that by physical inspection. That process can drag out for weeks, and some bigger retailers were still verifying their terminals as of early 2016, according to sources that spoke to Quartz.

The idea of the liability shift was to incentivize retailers to upgrade their equipment without forcing them to. And to a degree, that worked—for big retailers, like WalMart, Target, and Home Depot. Magnetic stripe cards were causing them massive fraud—millions of Americans saw their personal information stolen by hacks at Target and Home Depot. Suddenly being held financially responsible for that fraud could cost those stores millions.

A host of unanticipated or ignored issues have led to a less-than-optimal transition:

The whole chip card transition was timed to begin as the holiday shopping season of 2015 got underway. Contrary to expectations, things actually went pretty smoothly at first. Even if checkout times were longer because of chip cards, lines weren’t noticeably longer. That puzzled a few payments experts I spoke to around that time—the consensus was that processing chip cards took 10 seconds longer than swiping a card, at least. So why weren’t lines longer?

According to Forbes, CVS simply shut off the chip card part of its terminals during the holiday season, to avoid the inevitable long lines. And CVS probably wasn’t the only retailer to do that. So, to rehash, the solution for longer lines wasn’t to make checkouts faster but to completely bypass the new security feature during the busiest shopping season of the year.

The whole article, if unsettling, is well worth a read.