October 19, 2015
On Oct. 1, liability for counterfeit card fraud at brick-and-mortar locations shifted from issuers to whichever party is not equipped to handle EMV transactions. As a result, CNP merchants are holding their breath for the possibility that sizeable amounts of fraud, which is expected to be significantly reduced in card-present environments, will migrate to the CNP space, where it remains easier to perpetrate. However, in a Q3 earnings report issued last week, Netflix attributed lower-than-forecasted revenue in the U.S. “to slightly higher-than-expected involuntary churn (inability to collect), which we believe was driven in part by the ongoing transition to chip-based credit and debit cards.”
With more than 50 percent of all U.S. credit and debit cards expected to be re-issued by the end of 2015, it is possible that this side-effect of EMV could fall heavily on merchants that use a subscription pricing model. In a follow-up statement, issued Oct. 15 to the Wall Street Journal, Netflix stated that they are seeing a need for up to half of all users to update billing information once their cards have been upgraded. While Netflix did confirm it actively uses Account Updater products from Visa and MasterCard that provide updated card details when a card is re-issued, not all banks utilize this service.
“In those cases, we rely on subscribers to update their payment methods manually,” the company said. “When you’re processing recurring payments for some 42 million people, there can be a discernible impact on net additions even though it’s quite small relative to the size of our U.S. subscriber base.”
While some Wall Street analysts are questioning if this is simply a timely excuse for subpar earnings, payments industry experts are wondering if Netflix’s difficulties could signal a potential increase in churn after the re-issuance of nearly every credit and debit card in the U.S. Look for a feature article this Thursday on the ramifications the EMV migration could be having on the subscription-billing model and what merchants can do to ease the problem.