Pros and cons of EMV migration in US – An impartial view

Pros of EMV migration

Migration to EMV would enable merchants to accept chip based smart cards. Smart card offer the following benefits:

Fraud reduction

The chip can be used to store information about the card holder in an encrypted format and it can also store the rules which would govern the process of reading the information. Smart card can also be programmed to generate a unique PIN for every transaction that has to be produced by the card holder. This makes chip cards much more difficult to counterfeit and creates formidable obstacles for fraudsters.

The pressure on the US payment system is even higher as its neighbouring countries like Canada and Mexico are moving to EMV very fast. With rest of the world moving towards EMV, fraudsters might find US a safe haven for payment frauds.

Cost reduction

Online approval through a call to the authorization centre is mandatory for every transaction using a magnetic stripe card. Whereas because of the inbuilt security of smart cards and enhanced offline authorization capability, online authorization of transactions can happen in batches after the purchase amount crosses a certain limit. This would significantly reduce the processing and telecommunications cost.

Multiple Applications

The processing power offered by chips enables financial institutions to have multiple features and application on the same card. Payment applications like e-wallet, loyalty cards and non-payment applications like account management services and storage of information on cardholder’s buying habits can all be loaded in one card. The potential here is huge and there can be a day when all of us would carry only one card which would have information of all our debit cards, credit cards, loyalty cards, driving license, health affiliations etc.

Cons of EMV migration

There are a few roadblocks that can prevent EMV from being accepted in US as the most preferred standard for card payments.

Huge cost of implementation

EMV migration in US can be very costly to most of the stakeholders with issuers and merchants bearing most of the burden. The complexity of the payment ecosystem and involvement of numerous stakeholders makes ita very costly affair to replace the omnipresent magnetic stripe cards. Some experts have estimated a total cost of around 10 bn USD for building up the EMV infrastructure.

Growing eCommerce and mCommerce

EMV standard only covers card payments at POS terminals but has not yet increased its scope to Card-Not-Present(CNP) transactions like in eCommerce and mCommerce. With increasing eCommerce and mCommerce transactions fraudsters are shifting their focus in CNP transactions. Thus EMV without CNP standards would prove inadequate to reduce fraud loss.

Absence of EMV compliant readers in PCs and other devices

EMV can increase its scope to eCommerce and mCommerce only if PCs and other mobile devices support EMV compliant readers (either inbuilt or external device). As EMV compliant card readers are not included in PCs/Mobiles as a standard practice issuing banks would have to do significant investment to provide card readers to their cardholders.

Advent of other advanced payment standards

There is always a chance for a more advanced payment standard that has a bigger scope and covers all kind of payments. Google has been trying to come up with such an open standard which can prove to be a big threat to EMV.

Written by:

Kranti Kumar

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