Postponement of October 2015 U.S. EMV Liability Shift Is Likely, a DTN Poll Finds

By Kevin Woodward

n

The first major deadline in the transformation of U.S. credit and debit cards from magnetic-stripe tokens to smart cards embedded with a chip is just under two years away. Come October 2015, the liability for fraudulent transactions shifts to merchants that do not support the chip card standard EMV.

n

But, some in the payments industry speculate that deadline may be postponed. A majority of respondents—53%—to the Question of the Week in last week’s Digital Transactions News said a postponement of that deadline is very likely. Another 14% said it is somewhat likely.

n

Some 14% of respondents gave a postponement an even chance, with 3% saying it was somewhat unlikely and 17% saying it was very unlikely.

n

The conversion could be much more difficult because a federal judge in late July ruled that the Fed did not follow Congress’s intent in implementing the Durbin Amendment’s interchange price cap or its transaction-routing requirements. The Fed is appealing, but if the ruling by U.S. District Judge Richard J. Leon in Washington, D.C., stands, the law will require that with each debit card transaction, the merchant must have a choice of two unaffiliated PIN-debit networks and two unaffiliated signature networks, a scenario not easily supported with EMV.

n

“A postponement [of the liability deadline] is possible primarily as a result of the uncertain regulatory environment around the Durbin Amendment,” says Beth Robertson, an independent payments consultant. “Both the routing and the reimbursement implications of the July U.S. District Court decision from Judge Leon—and the time it may take to resolve those issues—are stymieing investment. As well, there are prior cases, such as in the Canadian market, in which liability-shift deadlines have been changed, so there is a precedent.”

n

The difficulty is that the EMV standard, so named after the original developers Europay, MasterCard, and Visa, was designed with one network identifier, she says. Adding other network identifiers would take time and money, she says.

n

And, if debit interchange is reduced further there is a risk issuers will reassess their debit card programs, Robertson says. Currently debit interchange is 21 cents plus 0.05% of the sale plus another 1-cent possible for fraud control. “If interchange is further reduced, then the profitability of debit cards is further restricted from the issuer standpoint,” she says. That could impede investment in new technologies, she suggests.

n

For its part, Visa Inc., the first network to set an EMV timetable for the United States, would not address speculation about a potential delay. What it would say is that it, like many others in the payments industry, is waiting on the court. “Visa is currently working to understand the implications of the recent U.S. District Court ruling and what the next steps will be,” Visa said in a statement. MasterCard did not respond to a Digital Transactions News inquiry.

n

Robertson says oral arguments for the appeal are expected to start in January.

n

Another complication that could delay the shift is that merchants may not be prepared, says Adil Moussa, principal at Omaha, Neb.-based Adil Consulting.

n

“2015 is not realizable because it takes a long time to communicate with merchants, get them to hear the message, get them to pay attention to it, and finally get them to take action,” Moussa says. “The other thing is that a lot of acquirers have been dealing with other priorities so they didn\'t really focus their efforts on getting their merchants EMV compliant.”