USA Set For Massive Credit/Debit Card Upgrade

It’s about time! While spending 3–4 months in southern California over the past 7 years, I’ve always been surprised that magnetic stripe technology is still dominant on debit and credit cards. I don’t believe I ’ve ever run across a ‘chip card’ detection device (EMV) in use anywhere I’ve been in the US. Canada embraced chip card standards back in 2007 and today it’s in use virtually everywhere. The USA is now thankfully dedicated to moving towards this standard over the next 5 years.

One of the biggest pushes towards using chip card technology was the massive data breach at Target Stores in late 2013. It isn’t the only one though as credit/debit card fraud is a deep seated problem in the U.S. As most of the developed world has migrated to EMV chip technology, some fraud has shifted over to the United States because of the ease with which fraudsters can duplicate magnetic stripe cards. As a result, the U.S. has carried a disproportionate percentage of global fraud losses.

In 2013, fraud in the U.S. cost $6.8 billion and accounted for 51% of global card fraud losses. That amount is completely out of proportion to the U.S. share of global card transaction volume. Personally, we have had our credit cards compromised on at least 2 occasions while in the US along with several other Canadians we know who also stay in Palm Springs for the winter. It has got to the point where we now deal in cash only as much as we can just to protect us from the hassle of card fraud.

Interac Association recently updated how chip card technology has reduced debit card fraud losses in Canada. Losses are now at their lowest level since 2003 and the total fraud has fallen from a high of $142 million in 2009 to only $38.5 million in 2012. This reduction is almost entirely due to the adoption of chip cards. The secure chip inside of the card, which holds cardholder details, is impervious to access by skimmers or any other unauthorized parties.

Why hasn’t the United States moved faster to implement EMV chip technology? The answer is simple – the huge cost to businesses. For the U.S. to adopt the standard, banks, processors, and merchants will have to upgrade their systems to accept and process chip card transactions. Some estimates put this cost at $11 billion. Despite that the change is definitely coming and banks, merchants and others will simply have to figure out how to adapt.

That’s because businesses will not have much choice in upgrading to EMV because of the leverage provided by what Visa, MasterCard and others call a “liability shift”.  I always love these slogans dreamt up in back rooms that sound so harmless but what liability shift really means is “hey, you’re on your own buddy”!

As of October 1, 2015 Visa, MasterCard and American Express have all announced that anyone that invested in EMV technology and is fully deployed will be protected from financial liability for card-present counterfeit fraud. It sounds very much like if Target messes up again and doesn’t upgrade they could be on the hook for the entire loss instead of the banks and credit card companies. That’s a pretty strong incentive to change I’d say.

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