Card Manufacturer CPI Card Group’s Chip Card Orders Boom During EMV Switchover

As it has for other suppliers to the payment card industry, the conversion of U.S. card payments from security-challenged magnetic-stripe cards to the EMV chip card standard is providing a windfall for leading U.S.-based card manufacturer CPI Card Group Inc. In its first earnings report as a publicly traded company, payment card, CPI said Thursday that sales to U.S. issuers of credit and debit cards grew 69% in the third quarter to $72.8 million from $43.1 million a year earlier.

Orders for EMV chip cards drove the increase, with shipments up 120% from 2014’s third quarter to 41.2 million, president and chief executive Steve Montross told analysts in a conference call. The earnings report and call were the Littleton, Colo.-based company’s first since its October 15 initial public offering of stock, which netted CPI $142.5 million.

Spurred by the payment card networks’ Oct. 1 liability shift for point-of-sale payments, U.S. banks and credit unions are in the midst of converting their credit and debit cards to the EMV standard. The shift assigns liability for counterfeit fraud to the issuer or merchant in a card transaction that doesn’t support EMV.

The shift picked up steam early this year but is far from complete on either the issuance or acceptance side. One major issue for everyone has been the retrofitting of payment infrastructure to handle the debit card transaction-routing requirements of the Dodd-Frank Act’s Durbin Amendment. Processors, networks, and issuers, however, have largely worked out the operational issues on how merchants can get the network choices for debit transactions mandated by the amendment.

“The EMV demand from our large issuers was slightly higher than we expected and, we believe, represented a modest pull forward of business into the quarter,” Montross told analysts, according to a conference-call transcript from Thomson Reuters StreetEvents. “With the resolution of industry-wide technical issues associated with EMV debit routing, we began to see increased EMV debit implementations by the banks. The level of EMV debit implementations has been lagging behind that of credit.”

While big financial institutions are well underway with their EMV conversions, Montross predicts that smaller ones will kick into high gear next year, especially with debit cards.

For the long term, CPI expects EMV to continue driving revenues as prepaid and private-label issuers board the chip card train, and general-purpose issuers upgrade their first-generation contact-only EMV cards to more expensive dual-interface EMV cards that handle contact and contactless payments.

In all, CPI Card Group posted net third-quarter income of $7.66 million versus a $3.22 million loss a year earlier, on net sales of $107.7 million, up 39% from $77.4 million.