The Visa Technology Innovation Program (TIP) is certainly stirring up all kinds of discussions in the technology community. I had an opportunity to get some clarification on exactly what these new changes from Visa mean for you, and wanted to summarize them here.

Unlike the Compliance Acceleration Program (CAP) which used fines and interchange fees to motivate merchants, there is no true financial incentive to participate in the TIP… today. The closest resemblance to a financial incentive is the domestic and cross-border counterfeit liability shift. Merchants that cannot accept an EMV or contactless card when presented one by a customer will bear the liability of a fraudulent transaction instead of the issuer after October 1, 2015.

Broken Pipe, by mrbill

The TIP mandates that 75% of the transactions must originate from “enabled devices,” not just devices capable of accepting an EMV or contactless transaction. Couple of key things to point out. The transaction itself does not need to be EMV or contactless, but the terminal must be capable of processing both of those payment types. Merchants that have upgraded their terminals with a slot for EMV and a contactless reader but cannot accept either in exchange for goods and services do not meet this requirement. That’s why there is another initiative requiring all processors to upgrade their systems to support dynamic payments by April 2013.

Keep in mind while the TIP does not address card-not-present transactions, the transaction volume is included in the numbers used to determine the 75% qualifying level. I can think of a number of strategies that could remove those transactions from being counted such as outsourcing card-not-present processing or creating a separate merchant relationship for your online store.

Merchants that choose to take advantage of the TIP may in fact be able to talk their acquirers or processors out of validating compliance entirely. This obviously would depend on the relationship you have with your providers as well as the way you process payments, but most acquirers are only required to report compliance back to the payment brand—not send along the Report on Compliance or Self-Assessment Questionnaire. Therefore, participating in the TIP could ultimately remove your annual PCI Assessment requirement if you convince your acquirer to report your compliance in lieu of a ROC if you participate in the TIP.

The three main outcomes that Visa is shooting for as a result of these programs are:

  1. Bring the backend processing technology up to more secure levels as is seen in other parts of the world. Dynamic authentication will reduce the amount of card present and counterfeiting fraud.
  2. Ensure cardholders that travel internationally can use the Visa card in countries where EMV is prevalent. Some cardholders have had trouble recently because their US-based issuers have not provided them with EMV capable cards.
  3. Push merchants to accept dynamic data methods for payment by excusing them from liability in the case of a domestic or cross-border counterfeiting fraud.

Frankly, the program is a pretty big step for us here in the US, and I’m very interested to see who participates, how quickly the migration happens, and how the other payment brands react.

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