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finance & strategy
Countdown to Chip-Card Migration
getting all stakeholders moving forward collectively and at the same time,” she notes.
How EMV Blocks
POS Fraud
EMV cards include a chip that generates a unique cryptogram
for each transaction, making it difficult for criminals to use stolen account data to make fraudulent transactions at the POS; whereas the transaction data from a mag- netic stripe card used at a POS terminal can be reproduced more easily by counterfeiters. U.S. card fraud affects 1 to 2 percent of all payment card transactions, amount- ing to about $8.6 billion per year, according to some estimates.
EMV has reduced counterfeit payment card fraud in other countries where it was introduced years ago; the most recent example is Canada, where the domestic counterfeit card fraud rate fell
49 percent after EMV’s rollout in 2008, according to the Canadian Bankers Association.
Though the U.S. traditionally has had relatively low counterfeit card fraud rates compared with other countries—partly due to a nearly 100 percent online authorization environment—U.S. payment card fraud rates are rising. Overall counterfeit card fraud represents about 37 percent of U.S. card fraud losses, and aggregate fraud rates doubled from five basis points in 2007 to 10 basis points in 2014, according to a study Aite Group conducted in 2014.
Some merchants and issuers
still need convincing to make
the investment to migrate. Javelin Strategy & Research estimates the cost for the U.S. migration to EMV at $8.65 billion, with the highest expense concentrated on terminal upgrades (see Fig. 2). But every merchant need not adopt EMV for the U.S. to begin to see major benefits from the change, accord- ing to payment experts. The cumulative effect expected when the largest issuers and merchants —accounting for about 80 percent of all payment card transaction volume—make the switch to EMV this fall will be significant, says Randy Vanderhoof, executive director of the Smart Card Alliance. “That’s when we’ll see the biggest decline in fraud,” he predicts.
Issuers Unleash EMV Cards
Large banks, including Chase and Bank of America, were among the
first to begin issuing EMV credit cards in 2014; midsize banks fol- lowed this year and experts sug- gest smaller institutions, including credit unions, will be among the last to move to EMV. “Issuers are taking a variety of approaches to implementing EMV, and their timing will vary,” says Visa’s Lawrence.
MasterCard anticipates seeing a big surge in EMV card shipments this summer. “Large issuers gener- ally have been on track with EMV card plans and shipments, and smaller issuers are falling in line too,” observes Oliver Manahan, MasterCard’s vice president of emerging payments. “Just as we saw with other countries moving to the chip card standard, some will be late and racing to be EMV compliant by year-end.”
Discover has already begun port- folio migration to EMV, with the
Fig. 1
U.S. EMV Card PEnEtration ForECaSt
100
80
60
40
25%
20
8%
0
91% 70%
98% 90%
68% 41%
EMV Credit Cards
EMV Debit Cards
2014
2015 2016 2017
source: Aite Group