On that day, merchants -- theoretically -- will turn on terminals that accept smart so-called EMV (Europay-MasterCard-Visa) cards that are much more difficult to counterfeit than traditional magnetic stripe cards. By then we will also -- theoretically -- have wallets full of EMV cards from MasterCard (MA) and Visa (V) (sometimes called chip and PIN because of their built-in technology), so we will be ready to use those terminals.
There are just a couple of problems with that scenario. Not all retailers will be EMV-ready, and not every card in our wallets will be either. That matters because, as of October, liability for credit card fraud shifts. Traditionally, card issuers -- banks, primarily -- ate losses due to counterfeit cards. They had the opportunity to reject the sale but they processed it, presumably because their processing systems did not smell a rat. Magnetic stripe cards also are easy to counterfeit, leading to billions of dollars in credit card fraud every year -- over $7 billion in the U.S. alone by some estimates.
On Oct. 1, the rules change. Retailers that have not installed EMV terminals will be on the hook for fraudulent transactions, particularly when the issuer has issued EMV cards. By fiat of the card networks, whichever party has the least secure technology loses.
You would think there would be a stampede to get ahead of that fraud. That is not how it is shaking out, however. Avivah Litan, a Gartner vice president and an expert in fraud, said she anticipated that by October “about 35% of merchant terminals will be EMV chip-enabled -- not necessarily turned on -- and between 15% to 25% of cards will be EMV chip cards.”
Julie Conroy, a fraud expert at consulting firm Aite Group, offered a somewhat more optimistic estimate: “Our projections are that 70% of credit cards, 41% of debit cards and 59% of terminals will be EMV-capable by the end of this year. The largest issuers and merchants are moving forward quite aggressively with their upgrades; the smaller issuers and merchants will be the long tail.”