The potential U.S. adoption of Chip and PIN EMV technology continues to gain momentum. As previously discussed, Walmart and T-Mobile recently pledged their support for EMV, and the United Nations Federal Credit Union has unveiled plans to issue credit cards that comply with the EMV standard.
Now, an executive vice president of the Federal Reserve Bank (FRB) of Atlanta's Retail Payments Risk Forum recently questioned whether it was time for government to develop a plan for the country to move to EMV. Certainly the voices calling for change seem to be getting louder, but what will it take to initiate change?
One factor that has held retailers and acquirers back from adopting Chip and PIN is the expense to upgrade the card payments infrastructure. However, if EMV upgrades are timed to occur when other changes are planned, the additional cost is small. For example, many merchants and acquirers are changing their networks to enhance cardholder data protection and are deploying end-to-end encryption or other approaches in their networks. Changes to the network to add EMV messaging can be made at the same time with little additional cost. Similarly, if EMV capability is added to Point-of-Sale (POS) terminals at the next cycle of POS renewal, there is only a marginal difference in cost.
Another obstacle that must be overcome is the seemingly absent benefits to consumers and issuers. For consumers, the transition to Chip and PIN would create a shift in culture. As American consumers currently have no liability for transactions on lost and stolen or counterfeit cards, they do not see the additional security of EMV cards as a benefit. Entering a personal identification number (PIN) during purchases is seen as getting in the way of a simple swipe and sign transaction. Issuers also have little incentive to move to EMV as they can charge higher interchange rates on magnetic stripe transactions.
What some issuers (like the United Nations FCU) have realized, though, is that as more and more countries adopt EMV, Americans who travel internationally are finding it increasingly difficult to use their payment cards abroad. In theory, EMV-enabled retailers should continue to accept magnetic stripe cards, but in practice, lack of experience with non-EMV cards means they are often rejected.
The FRB executive blog calls for government involvement; a premise that has worked in other parts of the world. As we’ve seen in Europe and Canada, a unified industry or government committee needs to be involved to move the needle….albeit slowly. In Canada, for example, it took seven years from the formation of the Canadian Chip Migration Program for migration to EMV to start.
Taking into account all these considerable factors, it is difficult to predict when — if at all — the U.S. will move to EMV. For this to happen, the business and security benefits of EMV (and the disadvantages of U.S. isolation as the rest of the world abandons magnetic stripe cards) must outweigh the costs to upgrade and the incentives not to change.