Issuers still have a choice of whether to require PIN authentication for EMV-chip cards, but David Nelms, chairman and CEO of Discover Financial Services, says the chip-and-PIN path increasingly makes the most sense for U.S. payment cards going forward.
Most issuers so far have followed the simpler chip-and-signature approach for credit cards, which seemed to be a more convenient approach to complying with the Oct. 1, 2015 EMV liability shift. But six months in, it's looking less and less sensible for issuers and merchants to treat the PIN issue separately for credit cards and debit cards, Nelms said during a keynote speech at the Electronic Transactions Association's annual gathering in Las Vegas on April 21.
"I think we may be missing an opportunity to go to the higher level of security with EMV, which is how chip cards are handled in the rest of the world and what merchants in other countries expect when they see a U.S.-issued EMV card," Nelms said.
Discover currently supports the chip-and-signature approach for its credit cards, but from his perspective, with Discover also acting an acquirer and operator of the Pulse PIN debit brand, Nelms sees the chip-and-PIN route as a more logical idea all around. While initially it seemed easier to ask for only a signature from consumers not accustomed to entering a PIN for credit card transactions, having two approaches "actually creates more confusion for consumers," Nelms said.
In any case, it will be at least another two years before the U.S fully migrates to EMV, which isn't surprising given the "unparalleled" complications of the market, which incorporates more merchant locations and more payment types, including 18 independent debit networks, than any other nation, Nelms said.
"It actually took other markets a bunch of years to complete their EMV migrations and no one has ever transitioned a market of the size and complexity of the U.S.," he noted.
Now in his 18th year as Discover's chief—and riding high on the company's news of its positive quarterly earnings this week—Nelms is optimistic about Discover's path forward.
A key to Discover's recent strength has been its willingness to subordinate its brand in relationships with partners and taking a white-label approach to new channels and markets, Nelms said.
"Our own brand is strong, and we've made a lot of progress in expanding our reach with our Diners Club brand, and by pushing our network out through other companies' brands, such as the BC Card brand in Korea, UnionPay in China, JCB in Japan and PayPal," Nelms said. "All these companies seem to like to lead with their own brands, and we're happy to do that; increasingly it's the way we want to go and how we're looking at working with other partners."
Forming partnerships is a key strategy for Discover to expand its offerings in mobile payments, wearables and the Internet of Things, Nelms said.
While Riverwoods, Ill.-based Discover doesn't have its own base in Silicon Valley, the company "very active" there and in its work with fintech companies, Nelms told PaymentsSource. "We're plugged into innovation centers in California and many other technology spots."
"I think the smartphone will become a dominant access device for payments, but there will be a proliferation of devices," he said, noting that physical cards will continue to coexist with many forms of mobile payments. "If you think about it, we've never really phased out any payments device yet. We just keeping adding things on and improving them."
Discover's role as the third-largest payments network, with a card brand that's present in 25% of U.S. households, puts Discover in a prime spot to serve consumers in payments and through its expanding array of direct banking products, including consumer and student loans and other account services," Nelms said.
"What's most important is providing broad access and letting consumers vote on what's of value to them," he said.