EMV Migration in the US – an Update
Recently I’ve had the opportunity to interview several senior US bankers and retailers about migration to EMV chip in the States. The feedback has been very interesting but also rather disturbing. Nearly everyone now accepts that migration will occur, sooner or later, one way or another. But there is no obvious consensus on what form it will take, when it will happen, or who will drive it. A great deal of confusion and uncertainty is evident, and in this climate it is not surprising that most banks and issuers are reluctant to invest proactively in the new technology and prefer to adopt a wait and see positioning.
This is a pity since there is a great opportunity for the US to complete the global chip project by embracing EMV rapidly and comprehensively, using the lessons learned from other countries to include added-value features such as remote chip authentication, contactless payment, and multi-account or multi-function cards from the outset.
Three issues seem to me to be worth highlighting as areas of confusion and concern which need early clarification and resolution.
The first is the issue of cardholder verification. Most in the European payments community would I imagine agree that a key benefit of EMV chip is that it facilitates PIN verification, which is, of course, much more secure than signature verification. That is why, in the UK for example, the migration project was dubbed “Chip and PIN”, and thanks to a high profile “Safety in Numbers” campaign coordinated by APACS, the switch from signature to PIN happened quickly and relatively painlessly. My impression is that few consumers or merchants in the UK now regret the passing of signature verification. Merchants, in particular, gain from a faster, cleaner checkout process and a payment guarantee which is no longer contingent on obtaining and checking the signature. This message does not appear to be widely accepted in the US, with many expecting a migration to chip and signature.
A second issue raised by most interviewees was that of mobile payments, with several citing the possibility that the US might in some way “leapfrog” EMV chip technology altogether and move straight to some more “advanced” form of payment; hence the case for wait and see. I personally remain resolutely sceptical about the prospects for mobile NFC payments. But in any case, there seems to be a fundamental confusion here. Mobile NFC payments are not in any sense an alternative to EMV chip but are rather enabled by it. The main reason why mobile NFC payments are feasible at all is because the SIM card in the handset and the chip on the card act in an equivalent manner without major changes to the rest of the payments infrastructure – terminals, networks, banks, brands, card schemes and their rules.
A third issue is the lack in the US of any central coordinating body such as APACS in the UK or equivalent bodies in most other countries which have successfully migrated. If anything, centrally coordinated direction is even more important for the US card payments industry because of its complexity and fragmentation, but with no sign that the Fed will adopt this role, it falls to the card schemes to lead this industry. While Visa took the initiative with its announcement last August (see Bulletin 292) its stance on chip and signature and mobile NFC, subsequently re-emphasised, has in some senses contributed to the confusion described above. Most recently, MasterCard has made a similar announcement, apparently taking the same broad line.
Banking Automation Bulletin Opinion Article, February 2012, by Nick Collin