Payments industry stakeholders met the one-year anniversary of chip card implementation in the United States with a mixture of celebratory messages and class action lawsuits, revealing a fractured payments landscape.
For example, on Sept. 29, 2016, Visa Inc. reported that counterfeit card fraud is down and EMV (Europay, Mastercard and Visa) usage is up. However, on Sept. 30, 2016, a California Federal judge supported anti-trust proceedings concerning chargeback liability brought by a group of small retailers against Visa Inc., Mastercard, Discover Financial Services and American Express Co., denying the card brands' motion to dismiss the lawsuit.
Visa's client financial institutions processed more than half a billion U.S. EMV transactions during August 2016, an increase of more than 1,000 percent, Visa representatives stated. The company also noted that chip-enabled merchants whose EMV transactions accounted for at least 80 percent of transaction volumes reported a 47 percent reduction in counterfeit fraud during May 2016, compared with the same period during the previous year.
Visa set three objectives for U.S. chip card implementation: prevent counterfeit card fraud, accelerate mobile payments adoption, and improve convenience and security for international travelers. Executing on all three goals has resulted in a considerable uplift across the United States, with more than 1.46 million chip-enabled businesses and 363 million chip-enabled Visa cards, making the United States the largest Visa chip card market, according to company sources. "Thanks to efforts across the ecosystem, we're seeing a positive impact on counterfeit fraud," said Stephanie Ericksen, Vice President of Risk and Authentication Products at Visa. "We're focused on continuing that momentum to bring counterfeit steadily down and simplifying the way businesses can adopt chip technology."
Payments analysts in the United States, however, have observed its impact on the small merchant community, many of whom were unprepared for the liability shift due to lack of instruction, equipment or processor readiness. As a result, numerous noncompliant retailers are being held responsible for more chargebacks, regardless of whether the chargebacks had anything to do with counterfeit fraud, which is the basis for the California court filing.
Plaintiffs Milam's Market and Grove Liquors LLC reportedly installed EMV readers but were unable to activate them due to delays in certification. The retailers were subsequently found liable by Mastercard and Visa for 88 chargebacks totaling $9,196.22 that began in October 2015 and continued until March 2016, when the lawsuit was filed. Plaintiff counsel Patrick J. Coughlin stated, "In the end, our hope is to secure some relief for the millions of merchants ‒ many of them small businesses ‒ who have suffered and continue to suffer enormous losses from this conspiracy."
As EMV implementation continues, retailers and card brands have launched new payment schemes aimed at reducing contact chip card transaction time at the POS. Visa's Quick Chip reportedly reduces transaction times to two seconds or less. Mastercard's M/Chip Fast is designed for high-volume environments such as quick service restaurants, where transaction times are at a premium. These and similar enhanced chip card methods have decreased processing time and waiting time in checkout lanes.
Ongoing delays in processor and device certifications and widespread complaints by small to midsize merchants have prompted card brands to relax penalties and regulations related to the liability shift. Card brands have tried to improve outreach, resources and support for merchants who are trying to implement EMV technology. Visa's recent move to restrict the number of fraudulent transactions that issuers can charge back to noncompliant merchants and card issuing banks has cut reported chargebacks in half since March 2016, Visa representatives stated.
Despite numerous setbacks and legal confrontations, U.S. payments industry stakeholders remain committed to implementing chip card technology to improve security and provide a consistent payment experience worldwide. Visa reported that foreign banks approved nearly 97 percent of U.S. Visa chip transactions overseas, compared with about 87 percent for non-chip cards.
"Chip is an important investment in the payment system, not only in security but also in driving future innovation and making payments easier for consumers," Visa's Ericksen stated. "The U.S. is clearly well on its way, and we're looking forward to many more advancements ahead."
Ajay Bhalla, President of Global Enterprise Risk and Security at Mastercard said, "Ultimately, we all want to deliver great experiences for consumers and merchants. That's why we believe that M/Chip Fast or any similar product should be implemented in consultation with the industry."
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