A Cooling EMV Market And Slipping Chip Card Prices Show up in a Card Maker’s Results

If the payments industry needed further evidence that the EMV frenzy unleashed in the United States in 2015 is cooling off, it can find it in the fourth-quarter 2017 and full-year results posted Monday by CPI Card Group, one of the country’s chief manufacturers of chip cards.

U.S. sales of EMV credit and debit cards were down 23.9% in 2017 for the Littleton, Colo.-based company, finishing at $158.9 million. Sales for the quarter totaled $37.9 million, down 13.4% year-over-year.

Banks and other issuers began flooding the U.S. market with EMV chip cards in October 2015 when card-network rules took effect shifting liability for counterfeit card transactions from issuers to merchants if the merchant wasn’t equipped to accept a chip card.

Slower sales to issuers weren’t the whole story. Selling prices are also dropping, company officials said. The price stood at about 90 cents per card by year’s end, down fully 7 cents from a year earlier, Lilian Etzkorn, chief financial officer, said during an earnings call late Monday. “There is definitely downward pressure on the pricing that we’re seeing across the industry,” Etzkorn said, according to a Seeking Alpha transcript. “So yes, I would expect to continue to see that pricing pressure continue.”

At the same time, while the company looks forward to a larger market for so-called dual-interface cards, it clearly sees little U.S. market demand for that product in the near future. These are cards embedded with near-field communication capability so they can be used in contactless transactions in addition to being inserted into chip-reading devices. Contactless EMV appears to be picking up steam in Europe, but apparently not in the United States, despite recent advertising efforts by card networks like Visa Inc.

“We continue to view the potential migration of the U.S. market to dual-interface cards as an attractive long-term opportunity,” said Scott Scheirman, CPI Card Group’s president and chief executive, according to the transcript. “We are pleased to see dual interface highlighted so prominently during recent television-advertising campaigns. We are in active conversations today with customers regarding their dual-interface product roadmaps…But at this time, we’re not factoring dual interface into our 2018 plans in a meaningful way.”

On current trends, the company predicts little or no market growth for the foreseeable future. “Based on a review of third-party data and forecasts, we currently expect the U.S. industry for card manufacturing volume will be essentially flat in 2018 versus 2017 levels, and in 2019, U.S. industry card manufacturing volumes are estimated to grow,” Scheirman said.

CPI’s prepaid card business, though small relative to the overall business, stands out as an exception. The segment posted a 50% year-over-year leap in the quarter, finishing at $19 million in sales. Momentum apparently picked up late in the year, as sales for 2017 finished at $61.1 million, up just shy of 2% over 2016. Contributing to growth, company officials said, is a program called CPI On-Demand that allows issuers to customize cards for customers.

“Entering 2018, while still early, we are encouraged by the continued momentum we are seeing in our prepaid business and we expect that CPI will participate in the industry’s modest growth this year” Scheirman said. “Longer term, we continue to see growth potential in prepaid where CPI has strong competitive position.”

For the quarter, total net sales came to $65 million, down 3.6% year-over-year. For the year, all-in net sales were $254.9 million, a 17.4% drop from 2016. Investors don’t appear to be fazed. As of mid-morning Tuesday, the shares were up 3 cents, to $3.17.