Now two years on from the U.S. EMV liability shift, chip cards are commonplace in American wallets. But the benefits of EMV cards — a longer five-year lifespan and a reduced need to reissue in the event of fraud — have muted the demand for new cards.

The Total Available Market (TAM) for cards in the USA spiked from around 250 million cards in 2014 to 700 million in 2015, then dipped to 532 million in 2016 and is expected to be in the order of 460 million cards in 2017, according to Philip Andreae, principal at Philip Andreae and Associates. “Clearly [EMV] has impacted the card manufacturing business,” said Andreae.

The volumes seen in 2015 may have been artificially high, meant to take advantage of bulk pricing to satisfy years of demand for EMV card issuance, according to Randy Vanderhoof, executive director of The Secure Technology Alliance, a not-for-profit industry group.

Chart: The highs and lows of EMV issuance

"We hear that large banks have a considerable inventory of chip cards because they wanted the best prices they could get,” Vanderhoof said. “There will be a drop in demand in 2018 because so many cards were issued in a short window of time in 2016 that won’t expire until 2019 – 2021."

Another factor weighing on card inventory orders is that increased card security measures, including EMV, are containing the need for entire portfolios to be reissued in the event of a data breach. This is good news for the industry overall, and demonstrates that EMV is serving its purpose as a fraud deterrent.

However, actions have consequences and the diminished need for mass card reissuance due to breaches is also a factor in a lull in card orders.

“EMV and dynamic authentication mitigate the need for complete and entire portfolio reissuances when data breaches and compromises occur.” says Jason Bohrer, senior vice president of operations for the card manufacturer CPI Card Group. “We have seen some small reissuance efforts based on recent breaches, but, have not seen large scale reissuance efforts in recent months.”

A time ripe for experimentation and innovation
It’s not all bad news however. The card industry is not just about debit and credit, and manufacturers are looking to push EMV cards into other card products such as prepaid payroll cards for the travel and tourism industry.

There have also been tentative steps to move EMV into fleet card upgrades, such as the recently announced US Bank EMV fleet card. While the transition to EMV at the pump is not scheduled to occur until 2020, and the number of gas pumps capable of accepting EMV cards is in single digits, the connected convenience stores also want to be protected from card fraud. Further, it’s more than likely that fleet card portfolio managers can negotiate competitive rates given the lull in card production, getting ahead of the next demand cycle when gas pumps add EMV acceptance.

There are further opportunities to fulfill orders with more exotic materials and functionality to cards. Card makers are seeing demand from the recent trend for metal cards for high net worth customers. Some issuers are also reportedly investigating dual-interface contactless cards as a marketing play, giving cards the same speed and convenience of an NFC transaction such as Apple Pay or Android Pay. In fact, the delta between the cost of contactless cards and standard EMV cards has shrunk to a point where they are now priced comparatively with EMV cards from 2014-2015.

The fallacy of longer EMV card life
One area that may be a disappointment to card issuers is the untested five-year lifespan of EMV cards.

The idea that a card would be more resilient because of the use of a chip versus a mag stripe may have made sense on paper, but this appears not to be playing out as planned. One one side this is consumer driven.

“I did hear one banker saying that millennials and Gen X change accounts and cards more frequently than previous generations so extending the card life to four-to-five years is not going to pay off as predicted in fewer chip cards being issued.” says Vanderhoof.

The other side of this is that issuers may want to make sure their card designs are fresh and new to retain relevance to millennials and Gen Z. With moves by Square and Venmo to bring their own cards into the market, issuers may need to be more nimble than ever to capture fickle and fast changing consumers.

What may be most instrumental in reverting to a three-year lifespan is the manufacturers' desire to get back to more consistent cycles of card replacement and therefore fewer peaks and troughs in card supply and demand. According to one source at a card manufacturer, the plan is to not wait for the next five-year reissue, but to start reissues in year three and then get back to a normalized cycle.

Nick Holland

Nick Holland

Nick Holland is a Senior Analyst at PaymentsSource. He has previously held analyst roles at Javelin Strategy & Research, Yankee Group and Aite Group.