For almost two decades, interest in EMV1 barely reached a simmer in the United States. Recently several card associations stirred the pot and now interest in the smart chip standard is heating up among almost every player in the electronic payments value chain. Financial institutions, merchants, acquirers/processors, card brands, and hardware and software vendors all want to understand the current state of EMV in the U.S. Is it finally time to take a seat at the implementation table, a table at which much of the world has been sitting for several years?
The term “EMV” refers to a specification for the technical requirements of chip-enabled payment devices, generally credit and debit payment cards with embedded icrochips, and how the cards interact with point-of-sale and ATM infrastructures. There are many “flavors” of a chip-based payment standard, including using chip + PIN only or chip + choice (the option of using either PIN or signature) as cardholder verification tools; the majority of EMV implementations globally have focused on chip + PIN enablement. Whatever the format, smart chips are the basis of the technical standard behind more than 1.24 billion payment cards and 15.4 million POS terminals,3 with almost all of those cards and acceptance devices residing outside the United States. Europe, Canada, Latin America and Asia/Pacific are all in various stages of EMV chip migration and usage, leaving the U.S. region—the largest user of payment cards in the world—as the last major hold-out for implementing the otherwise global standard.
Payment industry experts generally agree that a chip-based standard will come to the U.S., but the predictions of when and in what form vary dramatically. While pundits have been saying the U.S. is far from ready for it, there is a distinct possibility that the change may come sooner rather than later.
Visa’s recently-announced roadmap for an accelerated migration to EMV is a prod (more information about the plan is included later in this paper), but it’s not the guiding impetus bringing about the current evaluation in the U.S. Oddly enough, the major factor that could push our industry toward EMV is recent legislation that had little to do with smart cards. In the wake of the Durbin Amendment and banks’ dramatic loss of interchange revenue, every dollar lost to fraud now looms large. Aite Group reports that card fraud in the U.S. already costs the card payment industry (primarily issuers) $8.6 billion4,5 a year and industry experts are concerned losses will rise as fraud migrates to the U.S. from smart cardenabled countries. Perhaps now more than ever, banks have good reason to evaluate the extent to which embedded smart chips can reduce their losses from card fraud.