A chip-and-signature route to U.S. EMV adoption certainly would be less painful for banks and merchants than would the chip-and-PIN approach used most everywhere else, but taking the easy way out carries risk.
Indeed, failure to migrate to full chip-and-PIN in the U.S. "could turn out to be a long-term strategic mistake," Auriemma Consulting Group says in a white paper released this month.
For background, Auriemma conducted an "informal survey" of senior executives from several banks, retailers and other payments organizations via individual interviews during the first quarter to gauge their opinion on various strategies and responses to the card networks' EMV incentives.
Visa Inc. and MasterCard Worldwide in recent months announced a series of incentives to encourage U.S. merchants and issuers to adopt EMV technology to thwart counterfeit card crimes and to come into alignment with most global markets (see story).
Key questions Auriemma pursued included industry players' tactical approaches to implementing EMV, including whether to allow only a signature or to require PINs to authenticate transactions.
Visa initially suggested it would move away from the PIN for card verifications because a PIN is a static instrument that in some cases is subject to theft or compromise (see story).
Several U.S. issuers have begun deploying chip-and-signature cards for frequent overseas travelers, while others are sticking with chip-and-PIN, especially for commercial cards (see story).
Some industry players that favor the chip-and-signature approach believe it will be much easier to deploy with millions of U.S. consumers unaccustomed to using a PIN for most card transactions, the firm noted in its paper.
And many U.S. payments executives also do not perceive overall card fraud as being high enough yet to warrant the costly shift to EMV, "although some recognize that it is likely to become so as fraud migrates from 'chipped' regions, the firm observed.
Auriemma sees more benefits than drawbacks in adopting chip-and-PIN as the most secure approach and the one that would cut lost-and-stolen as well as counterfeit card fraud.
The firm points to experiences in Europe, where several countries and regions adopted EMV over the past several years, and the fact that using a PIN for cardholder verification has proven to be the most appropriate route for routine transactions and also provides protection for lost and stolen cards.
"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," Auriemma said.
On a separate note, few industry players seem motivated to adopt EMV merely to get a break on Payment Card Industry Data Security Standard compliance, which is one of Visa's carrots in introducing its incentives.
"The immediate milestone for reducing PCI/DSS compliance costs for merchants if 75% of Visa transactions originate from EMV terminals is not seen as an effective incentive," Auriemma said, based on consensus from its interviews. "There was a sense of chip migration as at best a compliance issue rather than a business opportunity."
On the question of who is likely to make the first EMV moves in the U.S., Auriemma sees different groups moving earlier than others.
In most countries that migrated to EMV, banks were the main drivers, with merchants following, "sometimes reluctantly," the firm noted.
But in the U.S., the reverse may occur, Auriemma contends.
"Some (U.S.) issuers are reluctant to be pioneers in view of a received risk that, without central coordination, their cardholders will defect to nonchipped competitors," the firm said, noting that some industry participants are worried consumers may resist adopting chip-and-PIN for routine transactions.
U.S. merchants "appear to have learned from experience elsewhere in the world that chip, especially chip-and-PIN, is on the whole a good thing" from a loss-management perspective.
Moreover, many large U.S. retailers already are equipped with EMV-ready payment terminals, which may lessen the burden of adopting EMV, the firm said.
Several million small U.S. merchants, on the other hand, are still largely unaware of U.S. EMV initiatives.
Auriemma predicts that the U.S. EMV migration likely will begin with large retailers, followed by large issuers in response to the 2015 liability shift, with smaller merchants and banks marching behind.
Among other issues clouding U.S. EMV moves is "fundamental confusion" about how the emergence of Near Field Communication-based mobile payments may affect EMV migration, which is putting some industry participants into a holding pattern, the firm suggested.
Some industry executives believe NFC may "leapfrog" EMV, paving the way for alternative advanced forms of payment that would not involve chips, Auriemma said.
"Mobile NFC payments are not in any sense an alternative to EMV chip but are rather enabled by it," Auriemma stated. “If there is to be a wholesale update of the point-of-sale network, the opportunity must be taken to include NFC capability as a matter of course."
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