Views On U.S. EMV Migration Progress Are Mixed

Some payments-industry experts feel progress toward widespread support of EMV smart cards in the United States within the next three years appears on target, fueled by the added security they bring to card-present transactions at the point of sale.

However, others suggest the technology may be dated and major retailers will be reluctant to convert because of the technology costs.

As such, one’s view of the pace of a U.S. EMV migration appears dependent on the eyes of the beholder.

Visa Inc. in August revealed incentives for merchants to embrace EMV by lessening Payment Card Industry security standards compliance testing. In addition, Visa established a 2013 deadline for merchants to accept EMV transactions and a 2015 deadline to shift liability to merchant acquirers from card issuers if fraud occurs in non-EMV equipment (see story).

Since the Visa announcement, many merchant acquirers, terminal manufacturers and payment processors have only begun plotting strategies for conversion, and some card issuers have launched EMV cards¬–for use outside the U.S., notes Philippe Benitez, vice president of secure transactions for North America at digital security and card-chip maker Gemalto NV.

Despite their intentions to improve card use outside the U.S., issuers converting at least some cards to EMV represent a “milestone,” he says. The issuers made it clear the country’s payments industry understands “it is time to get in line and increase payment compatibility with the rest of the world,” says Benitez, who works out of Gemalto’s North American headquarters in Austin, Texas.

Though the typical U.S. consumer was not the early target for an EMV card, Benitez feels it was significant that JPMorgan Chase & Co. and Citigroup Inc. began offering the smart cards last summer to eligible high-net-worth customers or world business travelers because it showed they understood the security value and global acceptance of the cards (see story).

Smaller U.S. card issuers represent the “sweet spot” for consumers of EMV smart cards because it indicates consumers do not need to wait for larger issuers to distribute them, says Benitez. As such, the EMV migration received a significant boost when New York-based United Nations Federal Credit Union and Santa Clara, Calif.-based Silicon Valley Bank were among the first in the U.S. to issue EMV cards to their “technology-focused” business customers, he adds (see story).

The credit union in May issued EMV Visa credit cards to its overseas travelers and reported high demand for the cards two months later (see story).

But industry analysts suggest it will take more than a few issuers to get the U.S. EMV ball rolling in a significant manner.

For every believer in the progress of the EMV migration, a nonbeliever has his say, acquiring consultant Paul Martaus of Mountain Home, Ark.-based Martaus & Associates tells PaymentsSource.

“Some Tier 1 [largest] retailers aren’t going to jump into it because they claim they spend a lot of money annually on security measures, a larger amount than they would realize in savings by initiating EMV,” Martaus notes.

Use of EMV technology reduces PCI-compliance scoping, but merchants have to keep a relationship open with a qualified security assessor for PCI reporting, “and they don’t come cheap,” Martaus insists.

Yet Martaus doesn’t totally buy into the nonbeliever line of thinking.

“Actually, I think the larger merchants will jump on EMV because most of them have the technology capabilities within their systems already, and they eventually want to read both smart cards and Near Field Communication to be able to take mobile payments as well,” he suggests.

Industry analyst Brian Riley, senior research director with Needham, Mass.-based TowerGroup, suggests Visa and Gemalto need to assure U.S. retailers EMV technology will not be outdated by the time they support it.

“There is no doubt EMV helps security at the point of sale, but at the end of the day, are we forcing 8-track technology on a world that is in CD mode?” Riley asks.

Technology issues aside, EMV has a major selling point in the U.S. because its widespread use would put the country on track with the rest of the world’s payments systems, Riley notes.

“Interoperability is the real game-winner for EMV and a place where it gets my vote,” Riley says.

Benitez sees the EMV migration “going into overdrive” when major retailers begin preparing point-of-sale systems to accept smart cards.

“Getting the back ends of payment systems prepared was the first phase, and we have seen a lot of that already. But the second phase is getting the terminals ready,” Benitez says.

Wal-Mart Inc. has taken a lead role in point-of-sale preparation by continuing to convert terminals nationwide to accept EMV and magnetic stripe cards, Benitez says. Indeed, Wal-Mart executives pushed for EMV conversion two years ago, stating its equipment would be ready for chip-based technology (see story).

No other major retailer has announced a complete upgrade or conversion to EMV-capable equipment, but manufacturers announced late last year that terminals accepting contactless payment and chip-and-PIN were being made available in the U.S. (see story).

The weakest link in the U.S. payments chain remains fraud dangers, Benitez contends. As fraud incidents grow, the impetus to move EMV migration along faster grows, he suggests.

Industry insiders agree significant losses through data breaches would fuel more interest in the EMV conversion in the United States (see story).

Riley contends if MasterCard Worldwide does not support the Visa incentives and initiatives with a similar program for EMV conversion, widespread use may not take hold (see story).

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