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Altering consumer behavior for a complete move away from the payment card is realistically years and years in the future.
Far from getting in the way of chip-and-PIN card adoption in the U.S. market, mobile payments at the point of sale will actually help pave the way for the EMV standard, says Philippe Benitez.
Philippe Benitez is vice president of business development and marketing, Secure Transactions, at Gemalto.
Europay, MasterCard, and Visa (EMV)-compliant payment solutions are unquestionably experiencing a resurgence in the United States. A conversation that many felt was losing momentum has once again surged to the forefront, but to what end? When will the U.S. reach the tipping point that will make EMV payment solutions the standard?
An equally interesting question is, will a parallel trend toward mobile payments at the point of sale, usually tied to near-field communication technology, help or hinder EMV in the U.S.?
The answers to these questions are: faster than you may think, and, far from interfering with EMV, mobile payments will actually help pave the way for it. This article talks about why these are the answers, but first let’s look at a little background.
Myths about EMV
In June, Silicon Valley Bank announced an EMV-standard solution for its customers, becoming the latest bank in the U.S. to offer an EMV solution to its highly mobile client base. Studies and pilot programs have shown that American banks stand to lose billions of dollars of potential spend if they lack a compliant EMV solution for customers. With numbers such as these on the line, American banking institutions are sitting up and taking notice.
But banks are not the only component of the payment process. Consumers and retailers must also see the need for implementing EMV-standard solutions if the U.S. is to experience market saturation. Early evidence about consumer demand is encouraging. United Nations Federal Credit Union (UNFCU) was the first institution in the U.S. to offer an EMV payment solution for its customers in May of 2010. At a Smart Card Alliance conference this year, UNFCU announced that card applications for the EMV solution were up a staggering 153% and that resistance to card annual fees was non-existent for the EMV solution. The results of this study clearly indicate that customers understand the benefits of chip-and- PIN solutions, and they see the value.
Retailer resistance is a leading myth among the litany of reasons for why EMV adoption in the States has seen slow growth. Several global retailers, like Wal-Mart, have already announced intentions to implement EMV-accepting point-of-sale terminals in all its stores, including those in the U.S. Aside from global compliance, and eventually, a global move to EMV exclusivity (that is, removing the magnetic stripe completely), the ability to accept payment from travelers and the added security measures of chip-and-PIN payment cards stand to benefit the retailer as well. EMV has the potential to ease the strain of Payment Card Industry (PCI) fines and expenses for merchants.
As American banks, consumers, and retailers move toward EMV adoption, the tipping point is in sight. The newest mythical barrier to chip-and-PIN payment procedure, however, is the rapid movement in the mobile-payment space. But mobile payment growth is not a thorn in the side of EMV adoption. Rather, it is an essential piece of the U.S. standard-saturation puzzle.
Mobile payment is a hot topic, with companies from Gap to Google throwing their hats in the ring to offer a solution. This is a market that actually stands to learn a lot from the history of the payment card industry. Fragmented solutions—the U.S. relying on magnetic-stripe technology, the U.K. focusing on promoting EMV, APAC and other regions now on the EMV train after initially pursuing their own solutions—have led to slower global adoption and standardization. This has given way to card declines, customer confusion, and holes in security. The globe is shrinking, and pushing a mobile-payment solution without careful consideration of how it will play in any given region is a dangerous misstep.
Some have argued that mobile payment using NFC stands to leapfrog the need for EMV. The train of thought is, why implement a technology that will soon be replaced by a cell phone that functions as a wallet, holding everything from identification to credit cards? While tech-savvy smart-phone owners have expressed interest in abandoning their traditional wallets and replacing them with their handsets, altering consumer behavior for a complete move away from the payment card is realistically years and years in the future.
Tipping the Market
Another issue confronting EMV migration is that infrastructure costs are projected to be high. Retailers have little interest in investing in technology that will be obsolete at any point in the future. The good news is EMV POS terminals have the potential to be updated to support mobile-payment solutions when the time comes. The infrastructure buildout for EMV terminals, ATMs, and kiosks actually stands to fuel mobile-payment solutions, bringing both solutions to the consumer faster and offering benefits to the retailer for many years to come.
There is currently a perfect storm of customer demand along with bank and retailer support for a migration to an EMV solution. In Canada, complete migration to EMV took approximately seven years. While timing is less concrete in the U.S., it stands to reason that, with advances in EMV technology and announcements in Europe and Asia to eliminate the magnetic stripe, the U.S. will probably adopt EMV faster than its G20 peers.
The combination of all these factors will tip the market for EMV saturation in the U.S. The mobile-payment solution will educate retailers, consumers, and banks on EMV-compliant payments, while in parallel, U.S. banks begin to issue EMV-compliant plastic cards for use abroad and at home.
