Page 106 - Pay Magazine s2014

finance & strategy
The EMV Experience: Focus on Prepaid
ExpErts: HigHEr EMV CarD-issuing Costs Will Drop as DEManD, CapaCity risE
The cost of issuing EMV cards is higher than mag stripe cards, but as demand increases, costs are expected to fall, experts say. The cost to an issuer for a mag stripe card currently ranges from around 20 cents to $1, while an early EMV card may cost two to 10 times that much, depending on the card type and production method, according to Render Dahiya, CEO of Arroweye Solu- tions. Other costs associated with issuing an EMV prepaid card could include inventory, potential spoilage, packaging and mailing as well as consumer education, he suggests, and those vary widely.
Issuers have several options when selecting the type of EMV card they need, Jack Jania, senior vice president of strategic partnerships for Gemalto, tells Paybefore. EMV cards may be produced as contactless or contact-only cards; with or without a PIN required; and with different capabilities and features, such as operating offline as well as online, he notes. “EMV cards are more flexible and offer options above just choosing a generic card profile; in most cases, issuers want to explore the variety of EMV configurations available that enhance the cardholder experience and those decisions take time,” he points out.
Planning for the specific features needed for each issuer’s EMV cards com- prises a significant part of the time and cost involved in chip-card migration, agrees Diane Jackson, vice president of strategic marketing for CPI Card Group. It can take eight to 12 months from initial discussions about going EMV to delivering the chip cards to consumers, she estimates.
Over the next few years, as U.S. EMV card demand rises, chip card production costs will gradually decline, according to Jackson. “Every EMV market has seen higher costs associated with launching a chip card program, then as the planning, training and infrastructure settle in and the market matures, overall EMV costs decline.”
CPI has prepared for an influx of all types of EMV card orders, including pre- paid. The Littleton, Colo.-based company this year opened an additional 50,000-square-foot facility in Colorado to handle EMV chip milling and embed- ding, personalization and fulfillment, and added EMV manufacturing capabilities to its existing Fort Wayne, Ind., card plant. CPI will be capable of producing 250 million EMV cards annually in the U.S. by the end of this year, surging to an
annual capacity of 400 million EMV cards next year, Jackson says. “The U.S. has about 1.2 billion payment cards in circulation and EMV cards will enter the market in phases,” she observes.
Other EMV card suppliers are still getting established and gearing up for mass production in the U.S., Sarah Grotta, a principal with Grotta Consulting, tells Paybefore. “Once manufacturers, embedders and personalization bureaus are well established, EMV card prices for all issuers are going to drop rather dramatically when the industry matures,” she predicts.
cards to convert to EMV first, he says. “Prepaid is a broad category with many different use cases; a payroll card typically has recurring loads and higher volumes, so it makes sense to go to EMV sooner, but for some types of lower-risk, lower-volume single-load cards, the higher EMV cost may not be justified,” he suggests.
Gift cards carrying higher balances could someday require EMV, Topolski proposes. “Many [lower- balance] closed-loop cards may remain mag stripe, whether they’re sold at a store or mailed. For other prepaid cards, the decision to switch to EMV may come once they reach certain balance thresholds or risk criteria.” In general, when a prepaid card or portfolio receives a certain number of reloads or hits a certain dollar volume, it could trigger the need to reissue the card(s) as EMV, Topolski suggests.
Prepaid card issuers—especially those handling payroll and govern- ment benefit card programs—may discover EMV to be a higher priority for protecting cardholders than originally assumed, some observers suggest. “For unbanked consumers who rely on prepaid cards and live paycheck to paycheck, there could be an argument that the higher security EMV provides is even more essential than for other cardholders, because in case of fraud, they can’t afford a hold on their account. Unbanked consumers are less likely to have a backup payment card, like a wealthier individual might have,” First Data’s Putman suggests.
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