CHICAGO—Further delay in U.S. migration to EMV chip-and-PIN technology might be another unintended consequence if the Federal Reserve Board’s proposed 12-cent cap on debit card interchange is enforced, two analysts agreed during a panel discussion here May 4 at the Smart Card Alliance’s annual conference.
“Lost revenue [from reduced interchange rates] will make it a lot harder” to spark banks’ interest to move to EMV, George Peabody, director of Mercator Advisory Group’s Emerging Technologies Advisory Service, told attendees.
Moreover, banks would be less inclined to spend funds on debit in general, contended Andrew Dresner, a director at Oliver Wyman.
“Why should banks spend the extra $1 or $2 [on the cost of chip card] if they are only going to make 12 cents?” Dresner said. “It’s hard to see the banks spending money on something for which there is no short-term return. The fraud losses are not enough to fund the change.”
Dresner and Peabody also discussed a variety of other topics during their panel discussion that focused on the so-called Durbin amendment under which the Fed acted in coming up with its rate-cap proposal and what the amendment might mean going forward.
Peabody questioned which payments companies would lead the change to the EMV, and the industry has yet to encounter a regulatory body to force a change, he added.
“The payments industry hasn’t had that type of hammer [over it forcing it] to make it move,” Peabody said, noting change could be more imminent if the industry began to view payments as a public utility such as electricity. “That might be a way to get this [EMV] change put in place.”
Both agreed a government mandate to EMV migration would not proceed as smoothly as it has in other countries because the U.S. banking industry is much more complex. “In the U.S. structure, I can’t see the Fed or Congress being able to work this out,” Dresner said.
As such, the change likely would be up to the network brands. But that in itself presents a problem, he added.
Dresner contends the payment brands, including Visa Inc. and MasterCard Worldwide, might think differently about innovation costs because, as public companies, they now have to answer to shareholders instead of institutional members.
Durbin might stall EMV migration in the U.S., but contactless mobile-payment projects involving Near Field Communication technology are proceeding.
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