Mirroring the growing chatter about the possibility of U.S. card issuers one day adopting EMV chip-and-PIN technology, panel discussions related to the topic were well attended during the Smart Card Alliance’s annual conference in May.
The general consensus among conference attendees was that the U.S. is starting to stroll down the path toward EMV migration. But multiple obstacles litter the road, including which industry players would lead the change and how mobile payments might factor into the equation.
“There’s a lot of complexity that still needs to be worked out in terms of how the U.S. might implement EMV,” Randy Vanderhoof, executive director for the Smart Card Alliance, tells PaymentsSource. But now there are conversations between the payment brands, card issuers and merchants about what the EMV options might entail, he adds.
“We’re no longer talking about [EMV] in the hypothetical,” Vanderhoof says. “Now the discussion is around, for the U.S. market, should the EMV [option] that gets implemented be contact or contactless, offline or online, PIN or no PIN. We’re getting down to the fundamental discussions that are needed to proceed into actual implementation.”
Some U.S. banks already are proceeding with EMV card issuance on a limited basis. In April, both JPMorgan Chase & Co. and Wells Fargo & Co. announced they would issue EMV cards to frequent international travelers. And Silicon Valley Bank in Santa Clara, Calif., revealed June 1 that it is offering chip-based credit cards to its predominantly technology-focused business customers.
All three banks are issuing chip-and-signature cards, while Wells also is issuing a chip-and-PIN card (
U.S. Bancorp is taking EMV a step further and issuing chip cards with contactless functionality (
The primary reason why those issuers decided on EMV “was to resolve acceptance issues with magnetic stripe cards in Europe,” says Jose Diaz, director of technical and strategic business development for Thales Information Technology Security, a Weston, Fla.-based security company. “A secondary issue for State Employees’ Credit Union was to reduce high levels of card fraud. Other banks are likely to follow on a case-by-case basis.”
While select U.S. banks are issuing EMV cards in small rollouts, a broader migration strategy is needed, some observers believe. But who would lead the charge is anyone’s guess because the U.S. payments landscape is more uneven compared with that of Europe and Canada.
“The U.S. payments infrastructure is highly fragmented in terms of ownership, making it difficult for one group to mandate, or agree on, an EMV migration,” Diaz says. “The majority of the U.S. payments industry is owned by venture capital firms compared with around 90% bank ownership a few years ago before” Visa and MasterCard went public, he says.
One thing the industry is trying to avoid is government intervention related to EMV migration, attendees at the Smart Card Alliance conference agreed.
George Peabody, director of Mercator Advisory Group’s Emerging Technologies Advisory Service, and Andrew Dresner, a director at Oliver Wyman, both agreed at the conference a U.S. government mandate to adopt the EMV standard 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 [Federal Reserve Board] or Congress being able to work this out,” Dresner said.
Vanderhoof believes something similar to what occurred in Canada could happen in the U.S. Canada is migrating to EMV chip-and-PIN cards, and the process, which began in 2009, is scheduled for completion by the end of this year.
“The Canadian market didn’t just get together one day and decide to move to EMV,” Vanderhoof says. “The Canadian government was looking at fraud rates, identity theft and consumer complaints, and made it clear to the banking industry they wanted to see the industry do something about it.”
Vanderhoof believes “the writing is on the wall” for similar U.S. government direction regarding EMV migration domestically.
“The federal government is definitely going to be looking closely at consumer-payment issues,” he says “It’s a strong signal to the industry that says ‘if you don’t address this issue, we are capable of stepping in to regulate or create rules you may or may not appreciate.’”
Adding to the EMV debate is the interest that also is building in Near Field Communication technology for mobile payments. But mixing the two concepts would be a mistake, Vanderhoof contends.
“Personally, I think it’s a mistake to make a decision to [delay a] move to EMV in some form or capacity [because of] what’s going to happen in mobile payments,” he says.
More than one panelist at the Smart Card Alliance’s conference suggested EMV migration in the U.S. might be accomplished by skipping directly to handsets and bypassing plastic cards.
But it remains unclear specifically how NFC could alter the payments landscape, Vanderhoof suggests.
“The global market is still just feeling its way through the mobile space,” Vanderhoof says. “The mobile-payments market introduces a whole new layer of complexity and challenges because of the other players that don’t exist in the traditional space.”
Google Inc. ended speculation about its mobile-payment initiative when it revealed plans for a mobile wallet in May (
Apple Inc. is rumored to be involved in separate NFC mobile-payment plans that would incorporate the company’s iTunes movie and music service. And Isis, a joint venture between AT&T Inc., T-Mobile USA and Verizon Wireless supported by Discover Financial Services, is set to begin its first major test in Utah (
NFC’s primary obstacle so far has been determining how the card brands, issuers, mobile operators and handset manufacturers can divvy up transaction revenues, observers say. “To consider incorporating all of those unknowns at the same time as you’re making a major change in the core infrastructure [with EMV] would be a mistake,” Vanderhoof says, conceding that mobile payments likely will play a role with EMV in the next five years.
“My consideration would be to do some analysis of what would be the incremental costs of adding contactless capability to any EMV rollout,” Vanderhoof says. “That will ensure some future-proofing for mobile if mobile becomes another important part of the payments ecosystem in the next five years.”
Banks and merchants are starting to stand shoulder-to-shoulder on the EMV front. Which form it ultimately takes, however, remains to be seen.
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