Payments

09:22 AM
Bikram Saha, Virtusa
Bikram Saha, Virtusa
Commentary
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3 Trends in EMV Adoption in the U.S.

By Q4 2015, the U.S. will no longer be a non-EMV market.

By 2015, the U.S. will no longer be a non-EMV market and will see widespread adoption of the chip-and-PIN cards used in much of the rest of the world. Here's three reasons why:

EMV is Already Partially Here

In 2013, American Express joined the "Corporate Credit EMV Card club." American Express is now offering EMV for their premium corporate cardholders - Platinum and Centurion. From 2011 onwards we have had U.S. Bank, Chase, Wells Fargo and BofA offering EMV for their corporate clients. This shows that at the minimum, cardholders who travel extensively in corporate America now have a safe and secure payment vehicle.

Meanwhile, the $3.7 billion United Nations Federal Credit Union in Long Island City, N.Y., is known to be the first credit union to issue and distribute EMV-enabled cards to a significant portion of its card base. State Employees’ Credit Union, in Raleigh, N.C was the largest issuers of consumer EMV debit cards in the U.S. The $25 billion credit union rolled out EMV-enabled debit cards to 1.1 million debit card holders out of their total 1.7 million members in 2012.

[See Also: Will Target Data Breach Speed EMV Adoption in US?]

I strongly believe that 2014-2015 will lead large U.S. financial institutions to focus on consumer cards. The above trend is a key contributor to making trend two a reality:

Fraud liability shift goes into effect October 2015: Today’s investment on EMV pays off in 21 months

In the U.S today, federal law limits the liability of card holders to $50 in the event of theft of account in information or the actual credit card, regardless of the amount charged on the card, if reported within 60 days of receiving the statement. The card issuer has zero liability if just the credit card account number is stolen. So who bears the loss? Merchants and the financial institutions.

Beginning in October 2015, the canvas will be different - merchants and the financial institutions that have made investments in the most secure EMV options will be protected from financial fraud liability for card-present fraud losses for both counterfeit, lost, stolen and non-receipt fraud. The first merchant in the U.S. to accept EMV cards in many of its stores is Walmart. And to follow, Sears, Target and CVS Caremark are rolling out Chip and PIN at an accelerated pace. Visa, MasterCard and AMEX have milestones towards minimizing fraud liability, or shifting fraud liabilities to EMV non-compliant parties, beginning with Visa’s by October of 2015.

EMV will heavily influence the NFC POS terminal

The obvious implication of trend two is that merchants across these countries will be forced to adopt EMV-enabled POS terminals, causing some to question the costs involved in this transition. The traditional magnetic stripe card can commonly cost as little as 20 cents each, whereas EMV cards have the potential to cost up to $10. With 23.8 million EMV terminals worldwide as reported by EMVCo, there is strong evidence that POS devices cost have been going down. It is needless to say that the investment far outweighs the expense as it is more secure and has the capability to significantly reduce fraud resulting from counterfeit card acceptance, greatly benefitting U.S merchants.

Implicit fallout will be the impact that EMV standards will have on the mobile payments landscape. In the process of upgrading to EMV standards, many merchants will also include the contactless readers (a device that uses radio waves to communicate with both read and write data on a smart card. They are used for electronic payments, and are commonly located near PIN pads, cash registers and other places of payment at merchant locations) and will simultaneously become NFC payment ready. This changing technological landscape will set the groundwork for widespread NFC mobile payment accessibility in the U.S. and in other markets that are on a similar path. A new research report from the Berg Insight forecasts 86% of POS terminals in North America will accept NFC payments by 2017 Berg expects in-store m-Wallet volume to grow dramatically to $44 billion by 2017 as Google Wallet, Isis, and other major initiatives finally build momentum. The simplicity, instant interaction and quick transaction capability of NFC technology on a EMV platform will attract many customers, especially the millennial generation that tends to want to get things “now,” get work done instantly and is very comfortable with using mobile devices.

Bikram Saha is Director – Solutions, Banking and Financial Services, for Virtusa

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KBurger
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KBurger,
User Rank: Author
1/28/2014 | 10:01:08 PM
re: 3 Trends in EMV Adoption in the U.S.
Well, there certainly is more awareness of EMV in the past few weeks so at least there will be more questions, coverage, discussion etc. Who knows, maybe Pres. Obama will address tonite in his State of the Union address, (Kidding!)
Jonathan_Camhi
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Jonathan_Camhi,
User Rank: Author
1/28/2014 | 9:19:41 PM
re: 3 Trends in EMV Adoption in the U.S.
Thanks for sharing. That certainly makes sense to turn on EMV in those areas. I'd imagine that they probably gained some insight to help them down the road with transitioning to EMV in their other stores whenever that happens.
BikSaha
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BikSaha,
User Rank: Apprentice
1/27/2014 | 11:47:11 PM
re: 3 Trends in EMV Adoption in the U.S.
Kathy, the involvement of Secret Service with Target
Card breach shows that U.S Federal government has taken this seriously. So we see momentum.

I believe there are 4 ways to accelerate this timetable

Accelerator1: Formation of a non-profit organization that will work with Merchants, Card Issuers, Terminal providers & Networks to expedite adoption. Similar to what Interac association did is Canada. Ideal population to rollout EMV in United States should start with merchants having annual net sales ranging between $2.1 to $ 4.2 Mn like Michaels Stores, PepBoys. This population has limited network of stores with low risk exposure.

Accelerator2: Forced reduction in interchange rates by the Government may act as a catalyst to push U.S. issuers and merchants to expedite broad adoption of the EMV.

Accelerator3: Major Merchant Services platform providers like Chase Paymentech, Elavon, First Data Merchant Services, Heartland Payment Systems, TSYS Acquiring Solutions, WorldPay should
achieve EMV payment processing certification by card brands like Visa, MasterCard, American Express and Discover. This will instill confidence on Merchants and expedite EMV adoption.

Accelerator4: Software System Integrator needs to develop strategic road-map with Merchant BankG«÷s Processor, Merchant Bank,
Card Network and Customers Credit Card Issuing Bank to develop an end-to-end Quality Assurance framework and a regression model to QA transactions flowing though these entities. We all know that the behavior of Card Present (CP) transaction will not get impacted with the introduction of EMV
Guest
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Guest,
User Rank: Apprentice
1/27/2014 | 11:35:44 PM
re: 3 Trends in EMV Adoption in the U.S.
Jonathan, Wal-Mart turned on EMV
acceptance in October-2011 at fewer than 100 stores, most in areas that draw
many foreign visitors such as Orlando, Fl.
BikSaha
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BikSaha,
User Rank: Apprentice
1/27/2014 | 11:28:06 PM
re: 3 Trends in EMV Adoption in the U.S.
Kathy, the involvement of Secret Service with Target Card breach shows that U.S Federal government has taken this seriously. So we
see momentum. I believe there are 4 ways to accelerate this timetable

Accelerator1: Formation of a non-profit organization that will work with Merchants, Card Issuers, Terminal providers & Networks to expedite adoption Inspired by the flag ship work Canada's Interac Association has done to get EMV going in Canada. In case of United States, I believe ideal population to rollout EMV should start with merchants with annual net sales ranging between $2.1 Mn to $ 4.2 Mn like Michaels Stores, PepBoys and so on. This population has limited network of stores with low risk exposure.

Accelerator2: Forced reduction in interchange rates by the Government may act as a catalyst to push U.S. issuers and merchants to expedite broad adoption of the EMV.

Accelerator3: Major Merchant Services platform providers like Chase Paymentech, Elavon, First Data Merchant Services, Heartland Payment Systems, TSYS Acquiring Solutions, WorldPay should
achieve EMV payment processing certification by card brands like Visa, MasterCard, American Express and Discover. This will instill confidence on Merchants and expedite EMV adoption.

Accelerator4: Software System Integrator need to develop strategic road-map with Merchant BankG«÷s Processor, Merchant Bank,
Card Network and Customers Credit Card Issuing Bank to develop an end-to-end Quality Assurance framework and a regression model to QA transactions flowing though these entities. We all know that the behavior of Card Present (CP) transaction will not get impacted with the introduction of EMV
Greg MacSweeney
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Greg MacSweeney,
User Rank: Author
1/27/2014 | 1:48:42 PM
re: 3 Trends in EMV Adoption in the U.S.
I think the Target incident will put the spotlight on EMV (or lack of EMV, in Target's case). Right now, most U.S. consumers don't know what EMV is. But if there are any more breaches, I bet they'll start to hear about EMV much more.
MichaelM611
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MichaelM611,
User Rank: Apprentice
1/22/2014 | 9:06:41 PM
re: 3 Trends in EMV Adoption in the U.S.
Interesting view.
Your statement:
G«£The
card issuer has zero liability if just the credit card account number is
stolen. So who bears the loss? Merchants and the financial institutions.G«•

Is interesting as in most cases the Financial Institutions are in fact the Issuers.
There are few issuers outside of Amex and Discover that are not directly tied
to a financial institution. Also, EMV still does not address the problem of online fraud. Tokenization of payment credentials makes more sense in that sphere.
Jonathan_Camhi
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Jonathan_Camhi,
User Rank: Author
1/22/2014 | 5:45:17 PM
re: 3 Trends in EMV Adoption in the U.S.
Interesting to see Walmart, which has made waves in payments with BlueBird, so out in front on EMV as well. I expect the Target breach will get more large retailers on board, which should give a little more momentum to EMV adoption.
KBurger
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KBurger,
User Rank: Author
1/21/2014 | 6:06:14 PM
re: 3 Trends in EMV Adoption in the U.S.
Informative overview, Bikram. Do you think there is anything that might accelerate this timetable? Specifically, it seems like the Target card breach and related fallout & analysis are putting a positive spotlight on chip-and-pin and that there may now be actual consumer (and political) demand for this option. With awareness can come heightened expectations and momentum.
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