Multi-account card providers Coin and Stratos Card have an EMV compliance gap that may prove problematic for their relationships with card issuers.
These cards are typically magnetic-stripe cards that can be programmed to store and protect the data from multiple payment cards. Stratos Card allows consumers to link EMV chip-cards (which are designed to deter counterfeiting), but because Stratos' product doesn't have an EMV chip it eliminates the security advantages of EMV cards. Coin has a similar issue.
These cards "are really compromising, or circumventing the security of EMV cards," said Richard Crone, a payments consultant at Crone Consulting LLC. "I can see the retailer holding the issuer completely accountable for settlement risk because they allowed their customer to put the card into one of these third-party schemes."
After the card networks' October 2015 EMV deadline, liability for compromised cards and fraudulent transactions will fall on merchants if they have not upgraded their terminals to accept EMV or the bank if it has not issued the customer an EMV card. If consumers decide to use their bank-issued EMV card through the magstripe on their Stratos or Coin card, the liability will likely fall still on the issuer.
But the issuer might then decide to bind the third partyCoin or Stratosto the settlement risk.
Stratos is working on building a product to work with the EMV standard that tokenizes card credentials, said Thiago Olson, co-founder and CEO of Stratos Card. "Our goal is to build long-term relationships with card members so they have the cutting-edge card technology as it's needed," Olson said.
Coin did not respond to a request for comment by deadline.
Nick Holland, the retail payments practice lead at Javelin Strategy and Research, disagrees that creating the most cutting-edge technology in the payments space is always a successful move. These tech-driven initiatives may get a lot of hype, but these "are not taking into account the complexities of the payments industry," he said.
While Olson said Stratos is currently in talks with several issuers, Holland thinks it's unlikely an issuer would work with a provider that will be pushing consumers to an older technology.
However, banks focused on white-labeling store-branded cards might adopt multi-account cards if their products are slow to convert to chip, Holland said.
"If a bank is supporting this they're probably acutely aware of what's happening with EMV," Holland said. "But never underestimate the naivete of banks."
Another disincentive for banks will be the lack of branding they'll receive if consumers move to multi-account card products. If consumers "put a bank's card into an aggregated electronic gizmo, where's the brand contact?" asks Heidi Liebenguth, managing partner at Crone Consulting LLC.
Although U.S.-issued EMV cards will have a magnetic stripe on the back for consumers to use when an EMV-capable terminal is not present, if a consumer swipes a card at a point of sale terminal that is EMV-capable, that system will prompt, encourage or possibly demand the consumer uses the chip, said Holland.
But none of the multi-account card providers have developed EMV-compatible products, so the terminals will not detect a chip, thus reducing awareness about its benefits.
Multi-account cards, including Dynamics' rewards-based electronic card, have been a tough sell.
Coin received backlash recently after it pushed the product's shipping date into 2015. The company also told beta testers that they'd have to pay $30 to upgrade to the public-release card in 2015, which made many early investors angry.
Olsen said Stratos' customers won't pay for tech upgrades, but the card does come with an annual fee. Olsen said the annual price would be disclosed when the card is launched commercially in the second quarter of 2015.
"From our perspective we're sitting right between two really hot spaces, one on connected devices and wearables and the next on mobile payments," Olsen said.
"The past couple decades has seen a lot of consolidation into the phone but now we're seeing things break out, whether it's with the smartwatch or other wearable devices," Olsen said. "We're building a form factor people are familiar with carrying around."
Plus there's no confusion over where consumers can use the card like there is with NFC-based mobile wallets like Apple Pay, he said.
But Javelin is forecasting that by the end of next year, the lion's share of point of sale terminals will be EMV enabled. "Target put the fear of God in retailers," said Holland. Most EMV terminals are also equipped to accept contactless NFC payments, he said.
Because Stratos links consumers' plastic cards to the multi-account card through a mobile app, the company could scrap the electronic card and pivot to a mobile wallet platform in the future, making it more attractive to issuers. Cards linked to the mobile wallet are connected to the Stratos Card through Bluetooth.