Unless the U.S. card business is able to offer merchants scaleable solutions that are cheaper and quicker to implement, there is a serious risk of full EMV migration taking several years to complete.
One critical issue is that neither merchants nor consumers appear to adequately understand the benefits of EMV, with consumers complaining of slow transaction speeds and merchants not seeing any perceived benefit in migrating to the new standard, despite the investment in time and money required for them to upgrade their terminals and software and train their staff. Clearly, an industry-wide communications campaign to these audiences is required.
Just as important, though, is the need for coherent software and hardware solutions that can be easily implemented at reasonable cost. The migration of liability for fraud from banks to merchants that happened in October 2015 will be a significant “push” factor for merchants; less obvious at the moment are the “pull” factors that will persuade merchants – and in particular, the hard-to-reach small and medium enterprise (SME) merchants which constitute fully 90% of the installed US merchant acceptance base.
While 65% of the respondents to our survey on EMV, "Squaring the Circle, Driving EMV Migration in the U.S.A.," recognise the need for this kind of technology solution, finding a technology that merchants can work with easily isn’t just about fraud prevention: 66% of respondents found meeting compliance standards a challenge; 75% found the process too complex and fully 80% viewed it as expensive. Given these reservations, it’s important both to deliver a more cost-effective and scaleable solution to merchants, and to recognise that EMV offers a wide range of benefits that prepare merchants for the future.
One of these benefits is interoperability with the world’s payment system, especially relevant for merchants who do business globally, or who have locations in heavy tourist traffic areas. Recent statistics from Ingenico suggest that 40% of the EMV transactions in the U.S. are undertaken using foreign cards, meaning that merchants who are not EMV-ready could miss out on significant revenue opportunities.
The U.S. card business is right to see growth in card fraud as a major motivation to move to EMV – but the EMV standard offers a range of other benefits that should not be ignored. In 2015, card fraud in the USA hit an all-time high of $8.5 billion as fraud migrated from markets such as Canada, which has seen card fraud at point-of-sale decline by 88% since EMV adoption in 2008, and EU markets that migrated to EMV as long ago as 2001.
More than 90% of the senior executives interviewed for our new report on EMV Migration in the U.S. market, identified fraud as the key driver behind the industry’s desire to move to EMV. However, respondents also noted that the size and complexity of the U.S. market, coupled with the absence of a government mandate for EMV migration, has led to much slower adoption of the new standard than in other markets such as the UK, Ireland and Canada.
The facts support this opinion: of the 14 million acceptance locations in the U.S., so far only around one million are EMV enabled. And although card issuance has moved on at pace, with the top ten issuers accounting for 70% of all US cards now issuing chip-enabled cards to customers, merchant acceptance remains an issue, especially outside the major retail chains and in high-volume, low-value transaction environments such as baseball parks and concert venues. At present, EMV acceptance is estimated to be growing at around 4-5% a month, a pace which suggests full migration could take years unless we can accelerate the process.
Apart from the risks of increased fraud and potential loss of revenue, there are wider benefits brought by EMV migration, among which is readiness for a future in which consumers will be looking to do business via what we call the “omnichannel” – the capacity to purchase from anywhere, at any time, via any kind of device. The growing dominance of e-commerce over the last ten years is just one example of this omnichannel environment: increasingly, consumers will expect merchants to be able to cope with payments from mobile devices, telephone orders, mobile wallets and other environments, all of which are supported by the EMV standard to deliver transaction and data security.
The industry professionals interviewed for our report agree with this vision of the future, with 76% of those interviewed believing that EMV will help to drive the adoption of mobile and contactless payments. All parties we have spoken to recognise how quickly the payments business is changing, with new players such as Apple Pay and peer-to-peer payments systems rapidly gaining ground at the expense of traditional solutions brokered by retail banks. To be ready for this new environment, merchants must have the infrastructure in place to deal with everything from digital wallets to contactless payments – and EMV is the standard that will provide security and traceability for all of these channels.
As service providers to the merchant sector, it’s our responsibility not just to make sure that merchants and consumers understand the future potential that EMV offers for secure transactions in an omnichannel world, but also that merchants have access to low-cost, efficient and flexible software and hardware to fully enable the migration to EMV. Visa’s “Quick Chip” processing responded to consumer concerns about transaction speeds on EMV cards, followed by MasterCard’s “M/Chip Fast” developed on the principles of contactless or ‘tap-and-go’ technology, shows how fast we can move as an industry.
As we are now at a critical juncture in the EMV migration pathway for the U.S., it’s time for us to deliver migration packages that will help EMV to become as big a success in the U.S. as it has been elsewhere.
Will Byrne is CEO of omnichannel gateway provider Worldnet.