As EMV-chip cards spread, with most U.S. merchants expected to accept the card by October 2015, there is still a major hurdle to overcome as consumers either resist the change or remain oblivious to it.
"I heard a story about someone who had gotten a chip and PIN card and thought there was something wrong with it, so they called the bank that issued the card and asked for a mag stripe card," says Michelle Thornton, senior product manager for COOP Financial Services, a network of credit unions that share technology and other services.
COOP has developed an EMV information service for its member credit unions, and it urges credit unions to share the information with their members, Thornton says.
"One of things that we do when we talk to credit unions about EMV planning is to not forget about the members' education," Thornton says. "It's going to be very different for the consumers."
U.S. consumers may be in for a shock when EMV arrives, since the migration will likely be gradual and slightly different between card networks. Some companies favor the chip-and-PIN approach for the security it provides, whereas others favor chip-and-signature for its more straightforward deployment.
Emerging mobile payment options further add to the confusion. All of these methods exist now, but not on the expected scale of the next two to three years, so most U.S. consumers currently still use mag stripe cards for almost all point of sale card payments.
"There's going to be a change in behavior at the point of sale," says Julie Conroy, a research director for Aite Group, which is finishing new research on the progress of the EMV migration in the U.S.
"People are used to a uniform card experience and expect that," she says. "That will change, especially in 2015 and 2016 where you will still have mag stripe cards, as well as chip-and-PIN and chip-and-signature cards."
Market research has not yet quantified consumer awareness of EMV, but even many merchants are not up to speed on the technology, Conroy says. In a recent poll that Aite performed as part of merchant-focused research on EMV, about 75% of merchants with annual revenue of $50,000 to $2 million still have not even heard of EMV.
"And those are the merchants, so you would think they would be in the know," says Conroy, adding that outside of U.S. consumers who frequently travel to EMV markets, there is still a learning curve. Scaling that curve may require more than an "about EMV" link on a website or an email blast.
"In this day and age, consumers have so much information being thrown at them that they don't always listen," Conroy says. "The challenge is consumers see lots of statements and messages on a website, and how much do they actually see that sinks in?"
Besides COOP, organizations such as the Smart Card Alliance's EMV Migration Forum provide information to promote consumer awareness. Smart Card Alliance did not return inquiries by deadline.
"Consumer awareness is not being ignored in the U.S." Conroy says. "But compared to the U.K., my feeling is that there isn't the resources in the U.S. to build consumer awareness."
The U.K. held an "I Love PIN Day" in 2006, in which there was a ceremonial "flipping" from mag stripe to EMV cards. Such a national event in the U.S. would be difficult to stage, since the U.S. market is more diverse and the EMV migration in the U.K. was led by the government, whereas in the U.S. the card networks are driving the EMV migration.
While consumers have a lot to learn about EMV, there is still time, Thornton says, noting COOP's consumer educational program will be built over the next year. Even when the migration begins, it will likely take years before all consumers and merchants are up to speed, she says.
"I would expect the first two to three years of the EMV migration will be spent educating the market," she says.
EMV Progress Update
Aite's pending research, which was not released as of June 3, addresses other elements of the U.S. EMV migration.
Aite interviewed executives from 15 of the top 40 U.S. issuers by purchase volume, representing about 56% of the total U.S. network-branded cardholder population. The research company also interviewed executives from MasterCard, Visa, debit networks and EMV suppliers.
The research group found:
- Eleven of the 15 issuers interviewed expect to have a majority of their portfolio migrated to the EMV standard by 2015. Four issuers will begin issuance in late 2013, five issuers will begin in 2014 and two aim to meet the October 2015 liability shift deadline.
"Everybody is balancing between being too early and too late," Conroy says, adding that if EMV cards enter the market before they are fully usable, the cards run the risk of being put at the back of the wallet by consumers. "And you don't want to be too late, because [an EMV] card that can be used at a chip enabled terminal will be less of a target for fraudsters. You don't want to be last because fraudsters will flock to you."
- The total cost of the hardware and plastics for the U.S. migration will be as much as $7 billion.
- The majority of respondents, eight, plan to use chip-and-signature as their preferred method, including all six of the top 10 financial institutions interviewed. One of these eight issuers plans to perform an initial rollout with chip-and-signature, then move consumers over to chip-and-PIN. Three issuers plan to use chip-and-PIN as the preference, and three are undecided.
- Issuers should expect a dramatic shift in fraud patterns. Fraudsters will increase card-not-present fraud, application fraud, and account takeover attempts, Conroy says.
"Credit card fraud defenses have been focused on counterfeit credit card fraud," Conroy says, adding other types of fraud will emerge as the EMV migration makes counterfeit cards less of a threat. "One thing we have seen with fraudsters is supply and demand. They will get it on other ways issuers and merchants have to be prepared for these changes," she says.