Migrating to EMV: Mobile Opportunities Await

21st May 2015

Over the last 12 months the United States has made huge strides, not only towards the next era of payments, but also the value-added services that can be offered in tandem, including integrated loyalty and proximity marketing. Efforts from all corners of the economy, including politicians, high-profile brands and merchants, as well as smartphone manufacturers and OS developers have put the U.S. on the payments map in a way that now allows issuers and other financial institutions, as well as merchants and brands, to compete on a global scale, underlined by the need to keep consumers’ personal information protected from fraudsters which is of primary importance.

Nevertheless, the US still has a few hurdles to overcome before it matches the payment initiatives of other regions of the world. For a variety of reasons, including a perception that the U.S. was largely immune to the card-present fraud experienced in other countries, the U.S. has been slower to adopt EMV (Europay-MasterCard-Visa), the global standard for chip card payments. As a consequence, the U.S. has seen increasing levels of face-to-face fraud with cloned, counterfeit, and lost and stolen cards – in 2013, the U.S. was the source of 51 percent of global card fraud. This rise in fraud fuelled, in part, the decision by the major card brands to sponsor migration to the EMV standard, and their adoption of a liability shift to incentivize financial institutions and merchants to become EMV-compliant by October 2015. The liability shift moves the liability for a fraudulent transaction that would have been prevented were both card issuer and merchant compliant with EMV onto the non-compliant party.

Despite the impending liability shift, only 12 percent of merchants were compliant as of January 2015, and only an additional 19 percent thought they would be compliant by the October deadline.

Issuers are faring a little better, with the US-based Smart Card Alliance estimating that 575 million chip cards will be issued by the end of 2015, representing around 71 percent of credit cards and 41 percent of debit cards. That leaves a significant number of cards to be migrated and a number of issuers and issuer processors with no plan, or a deferred plan, for EMV adoption. Those that have not started on EMV migration may view it solely as a compliance matter, and are prepared to take the risk of fraud targeting card portfolios that have stuck with insecure magnetic stripe technology. But there is a more strategic driver for EMV adoption, and for investing now in extensible technology that will support the inevitable move to mobile payments.

EMV underpins the transacting capabilities of most mobile payments solutions including Host Card Emulation (HCE), Apple Pay and Samsung Pay. This is important because the market is at a point where card issuers can provide mobile payment services to their customers through a choice of models. Issuers and processors with established EMV card issuing and transaction processing capabilities are extremely well-positioned to take advantage of the revenue-generating opportunities presented by mobile payments, including loyalty and couponing apps that interact with payments, targeted offers and incentives which are pushed or pulled from BLE beacon and near field communication (NFC) tag networks.

In addition to generating revenue, these types of services will build customer loyalty and drive adoption of mobile payments. Issuers that aren’t EMV-compliant will remain behind the innovation curve, unable to offer the value-added services that consumers will come to expect as business-as-usual.

For more information on how to reap the full benefits of a transition to EMV, I invite you to read Proxama’s recent whitepaper, “EMV: The Stepping Stone to Mobile.”



Nigel Beatty, VP Global Business Development, Proxama