LAS VEGAS–The relatively late timing of the U.S. move to adopt the EMV smart card technology means it could dodge some of the headaches other countries experienced in shifting to EMV.
Poor planning and coordination of EMV rollouts between issuers and merchants, failure to ensure ATMs also were EMV-compliant, and corporate indecision caused delays and losses in some markets that shifted to EMV in recent years, Jane Cloninger, a partner with Edgar, Dunn & Co., said March 6 during a presentation here at the Cartes in North America Expo & Conference.
But the U.S. also faces its own challenges, she suggested. And that may call for greater cooperation and industry players forming working groups to resolve certain issues.
The U.S. has far more payment and ATM terminals and issuing institutions than any other major market, making the scale of the conversion “very large,” Cloninger said.
Less than a dozen banks control about 80% of all U.S. credit card portfolios, “but on the debit side there are thousands of institutions issuing cards that must be converted to EMV,” she said.
Moreover, the U.S. has more payment networks than most markets, including a variety of electronic funds transfer networks and independent sales organizations supporting small merchants. These factors “compound to make the U.S. a far more complex market than any other that has shifted to EMV,” Cloninger said.
Until recently, the business case for the U.S. adopting EMV “was negative,” she said. But as the critical mass of EMV-compliant terminals and cards around the world increased the past few years, costs declined. And the relatively higher fraud risk the U.S. posed as the only major market still using less-secure magnetic stripe card technology changed the stakes.
Indeed, during 2010, that environment changed because fraud began increasing in the U.S., and U.S. cardholders with mag-stripe cards were being turned away at non-staffed and staffed EMV terminals throughout Europe,” Rodman K. Reef, industry consultant and retired chairman and CEO of Citishare Corp., said during a March 6 Web seminar sponsored by PaymentsSource (
Although the overall business case to switch to EMV has turned positive, “it will take a long time to see benefits,” Cloninger says, suggesting it could take five years before U.S. payment-industry players are required to be fully compliant before EMV investments begin to pay off.
On the plus side, “both the cost of terminals and chips have declined significantly” in recent years, and most terminal makers’ hardware automatically is designed to allow for EMV transactions, Cloninger said.
“There will need to be platform changes, and adding EMV software, but the hardware is generally there,” she said.
Very large merchants “will largely take care of themselves” as they plan to shift to EMV, Cloninger said. Many already have invested in EMV-ready hardware and are beginning the process of changing their other systems to be EMV compliant within the next year or two.
The smallest merchants will face fewer obstacles in switching to EMV “because merchant acquirers will push out the EMV technology to them,” Cloninger said.
But thousands of merchants that do not fall squarely into either the very large or very small category will have the toughest time in the U.S. EMV shift. “The mid-tier merchant is where there is a lot of confusion, and a lot of education needs to happen in that segment,” she said.
Pitfalls merchants should avoid include trying to adapt older or slower payment terminals to EMV.
“Merchants should look at what kind of terminals are available and make sure they are getting good speed in processing EMV transactions,” Cloninger said, noting that in some European markets EMV transactions seemed initially to take “an excruciatingly long time” to conduct, which was frustrating to both merchants and consumers.
Card issuers also should invest in the best quality of EMV chips available.
“A lot of early EMV deployments (in other markets) were done with the least expensive chips, and a lot of issuers realized later they needed to upgrade,” she said.
A few markets lacked coordination in rolling out EMV technology to various channels. In Mexico, for example, most point-of-sale terminals were EMV-compliant before ATMs were, so card fraud suddenly spiked at ATMs, Cloninger said.
“A balanced, coordinated EMV rollout is best,” she said, noting that if terminals are EMV-ready long before banks begin issuing EMV-ready cards to customers, merchants will get frustrated. And sending EMV cards to millions of consumers before the marketplace is ready to accept them can create unnecessary confusion.
Being the first on the block to implement EMV is not wise, but neither is lagging behind, Cloninger said. “In Latin America, one large issuer had to delay its EMV implementation by 18 months, and during that time they saw their card-fraud levels more than double because they were the weakest link (by continuing to rely on mag-stripe cards when peers were all using EMV),” she said.
The debate over whether U.S. card issuers will opt to supply cardholders with EMV cards requiring only a signature for authentication versus a PIN, which is the case in most markets around the world, will not likely be resolved easily, Cloninger suggested.
“I think chip-and-PIN is the only way to address the most fraud,” she said, noting, however, that the U.S. also reasonably could support online authorization of transactions without requiring PINs.
What remains unresolved are “some interoperability issues” between the U.S. and markets where EMV cards will continue to require a PIN.
Another problem is that no unified group is working together yet to resolve the chip-and-signature versus chip-and-PIN and other EMV issues, Cloninger said.
“There is no central group working on this,” she said. “Visa and MasterCard are doing things on an individual basis, and we need something to bring everybody together.”
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