What MasterCard's EMV "roadmap" means for merchants

By Mary Lou Jay

Last summer, Visa threw its weight behind EMV, the "chip-and-PIN" credit card technology that's already the norm in Europe. Now, MasterCard is following suit. The credit card giant has announced what it's calling its EMV "roadmap," an overarching plan that gives merchants incentives to get on board.

Carrot and stick
In late January 2012, MasterCard introduced what it called a "comprehensive roadmap" that encompasses the migration from credit cards with magnetic stripes to EMV "smart cards" with embedded microprocessors. Credit card acquirers (financial institutions that process card payments for businesses) will have until April 2013 to upgrade their infrastructure to accept EMV technology.

When it comes to getting merchants onboard, MasterCard has said that its EMV program will provide "true financial benefits" to merchants and promised to release more specifics in the next few months. In other words, it is expected to use a carrot-and-stick approach similar to Visa's, according to a report in The Green Sheet, a publication that focuses on the payment industry.

Essentially, according to The Green Sheet, MasterCard is expected, like Visa, to make it worth merchants' while to follow their acquirers in updating their equipment. If customer card data are compromised in a security breach, it's generally the card issuer who is responsible for paying. Yet, MasterCard is expected to shift that responsibility onto whichever entity hasn't upgraded to EMV. This means that, if merchants don't follow their acquirers in upgrading their technology, they could be the ones left paying for security breaches involving their customers' cards.

MasterCard has yet to lay out concrete deadlines for this shift in liability. Visa's guidelines give merchants a deadline of October 2015 to make the upgrade to EMV-compatible point of sale (POS) systems. Merchants who sell petroleum will have an additional two years, since their POS systems are linked to gasoline pumps.

Another perk Visa has extended for cooperative merchants: a waiver of the requirement to validate their compliance with PCI DSS (the PCI Data Security Standard) if they can verify that at least 75 percent of their transactions are EMV-based. Merchants will still have to comply with PCI DSS standards, however. It remains to be seen if MasterCard will offer the same incentive.

Why EMV?
Credit cards with EMV chips reduce the risk of fraudulent transactions because of their use of powerful encryption technology known as dynamic authentication. Each transaction creates unique transaction data. That means a thief who captures the data from an online transaction, for example, can't use it to make additional purchases, according to nonprofit industry association the Smart Card Alliance. In addition, EMV chips can't be scanned or altered by a card reader, which reduces the threat of counterfeit cards.

That's very important in the U.S., which currently accounts for 47 percent of global credit and debit card fraud, although it generates only 27 percent of the total volume of purchases and cash, according to the Nilson Report, a trade newsletter. U.S. payment card fraud loss was $3.56 billion in 2010.

Payments of the future
In a press release announcing the EMV requirements, MasterCard said that its roadmap "takes steps to address how consumers really shop" -- and the way they're increasingly shopping is with smartphones. EMV terminals generally use the same technology as the contactless terminals that allow customers to tap and pay with their phones. So, making EMV payment terminals the norm could make things more convenient for customers eager to use smartphone payment technology.

"We're moving toward a world beyond plastic, where consumers will shop and pay in a way that best fits their needs and lifestyles with a simple tap, click or touch in-store," said Chris Wilton, MasterCard's president for U.S. markets, in a statement. "...We're focusing on readying the ecosystem to drive future innovation and provide new customer experiences to enhance the value of electronic payments."

The U.S. is a latecomer to EMV; it's been used in Europe for several years and is currently employed in Canada, Latin America and Asia as well. U.S. credit card holders have sometimes been frustrated when trying to use their cards while traveling abroad, as not all EMV POS systems accept magnetic stripe cards.

Europay, MasterCard and Visa developed the first EMV standards back in 1996, and JCB and American Express have since signed onto the standard. There are currently 1.3 billion EMV cards in circulation, according to the Smart Card Alliance, and countries where they are used have seen a significant reduction in credit card fraud.

See related: MasterCard urges ATM owners to upgrade to EMV technology; A guide to Visa's merchant incentives for chip-and-PIN compliance

Published: February 22, 2012