The conversion of U.S. magnetic-stripe credit and debit cards to the Europay-MasterCard-Visa (EMV) chip card standard is about to shift into high gear, and the payments forecasters are busier than their counterparts at The Weather Channel just before a hurricane’s landfall. The EMV Migration Forum, an affiliate of the Princeton Junction, N.J.-based Smart Card Alliance trade group, on Thursday predicted more than 100 million EMV payment cards will be issued by year’s end.
Earlier this week, Aite Group LLC issued a report predicting that 25% of U.S. credit cards and 8% of debit cards will have EMV capability this year. With Americans carrying more than 1 billion general-purpose payment cards in 2013—an estimated 579 million credit cards and 597 million debit cards—Aite’s projections mean that about 193 million cards could be EMV-enabled by Dec. 31.
The EMV Migration Forum’s forecast is based on estimates from an unspecified number of industry suppliers. It also predicted that 4.5 million EMV-capable point-of-sale terminals will be installed at merchant locations by year’s end.
Aite’s report focused on card issuance and is based on April and May interviews with payment card network executives and 18 of the top 40 U.S. credit card issuers, including seven of the top 10. Aite’s respondents represent 56% of the U.S. credit card base.
By the end of next year, just after a major EMV deadline, Aite estimates 70% of U.S. credit cards and 41% of debit cards will be converted. That works out to about 650 million cards, assuming no change from the 2013 base.
In contrast, a report issued last month by Javelin Strategy and Research predicted that only 166 million credit cards and 105 debit and prepaid cards would be EMV-enabled by the end of 2015.
While the estimates vary based on who’s predicting, the more important issue is why and how the U.S. card industry is converting to EMV, a 20-year-old standard in effect in more than 80 countries. Both issuers and merchants face October 2015 card-network deadlines that will shift liability for counterfeit card fraud to the party in a transaction not equipped for EMV. Gas stations have until October 2017.
Clearly, the industry is on the cusp of mass EMV card distribution; until now, most U.S.-issued EMV cards have gone to international travelers facing increasing difficulty using their mag-stripe cards aboard. EMV is “coming soon to a wallet near you,” says Julie Conroy, research director at Boston-based Aite and author of the new report, “EMV: Lessons Learned and the U.S. Outlook.”
The 2015 liability shift is the most obvious reason for the coming profusion of EMV cards, which are highly effective in thwarting point-of-sale counterfeiting. But also lighting a fire under U.S. issuers is the previous conversion by all major industrial countries to EMV, most recently Canada. EMV’s gains elsewhere have made U.S. mag-stripe cards, which are relatively easy to counterfeit, a favorite target for fraudsters worldwide. According to Aite’s research, U.S. credit card fraud is now 10 basis points of purchase and cash volume, double its rate in 2007. That translates into about $6 billion a year in losses, according Conroy. “Ten basis points is a motivator,” she says.
A closely related issue is the boom in online fraud, for which EMV cards provide no special protection. Online fraud has spiked in countries where POS fraud became tougher to commit. Aite predicts U.S. online fraud losses will more than double from current levels to $6.4 billion in 2018.
The majority of Aite’s respondents plan to convert their credit cards to EMV before their debit cards. Thirteen of the 18 issuers favor chip-and-signature authentication for credit cards over the chip-and-PIN authentication common in some EMV countries. The reason, according to Conroy, is that almost no one in the United States today uses a PIN with credit cards. Given that the average cardholder has about four cards, issuers fear adding them will put them at a competitive disadvantage.
“Nobody wants to have the most cumbersome consumer experience and risk their card going to back of wallet,” she says.
In contrast, all of Aite’s issuers said they plan to use chip-and-PIN for debit cards, according to Conroy.
Another major issue is which types of EMV cards will be available—ones with contact chips that are inserted or “dipped” into a POS terminal, or so-called dual-interface cards that have both contact and contactless chips but are more expensive than contact cards. Out of 17 issuers responding, eight plan to issue contact-only cards, five expect to issue dual-interface cards, two plan to offer both types, and two are undecided.