Numbers of Note: Is EMV being swiped right?

USA: Credit card and debit card payments based on chip technology initially created by Europay, MasterCard and Visa (hence the name) or EMV has been witnessing a mix set of chips in the last few months.

On one hand it seems that the adoption of EMV in the U.S. has reflected some noteworthy momentum in the six months since the official liability shift last October as per MasterCard’s reports. This hints that users are inclined towards dipping their card when paying in-store and that both card issuers and merchants have made progress with EMV adoption, the numbers interpret.

Another tab shows that the last 12 months have actually turned as a positive year for the EMV smart payment cards standard with EMV card issuance in the U.S surpassing original industry expectations, and touching 600 million units in 2015. The same number for China stands at an 850 million mark. Both the markets have been accounting for 53 per cent of the more than 2.6 billion total EMV cards shipped in 2015, from what ABI Research has gathered.

It also leans on the possibility the market penetration is likely to hit close to 100 per cent over the next two years with fast migration. Here, as ABI Research underscores, U.S. EMV shipments may peak in 2016 and reach approximately 617 million units and next in 2017, shipments may slide down to about five per cent with later shipments likely to settle within the 600 and 615 million range.

The research however stays upbeat on the worldwide market chasing a growth trajectory, driven by EMV migration programs on the horizon, such as those in Indonesia and India.

As per what MasterCard tells, over 67 per cent of its branded consumer credit cards issued in the U.S. now have chips. This converts as a 51 percent jump in the number of its chip-enabled cards in the market since the Oct. 1, 2015 liability shift. Some 1.2 million U.S. merchant locations allow consumers to use their chip cards, an increase of 121 per cent, with one million local and regional merchants turning on terminals to accept chip card payments.

Initial issuance in favor of the more cost-effective contact interface, a move to contactless presents a substantial value proposition for leading smart card and secure IC players, feels ABI Research. Chip technology has been argued as an essential upgrade to better protect consumers and businesses, as MasterCard executives have emphasized in its report.

This one also claims that other countries that have already adopted chips gained significant reductions in counterfeit card fraud over time – as much as 60, 70 or even 80 per cent.

Fraud. On the other hand, fraud is what remains a moot point with EMV.

There’s more to how the flip side dances when it comes to EMV adoption. A recent study points that despite a deadline of October 2015, some 42 per cent of retailers have yet to update payment terminals to be EMV compliant and that 43 percent of retailers that have confronted sort of data breach in the past five years have not made the technology transition. This Cardhub study also distills that there are $8 billion fraudulent card purchases each year in the U.S.

On the forefront are financial institutions, coming up as the most active and progressive in moving to EMV, replacing the traditional magnetic striped card security technology with a card housing a computer chip, this study (which polled 55 major retailers and 1,000 consumers regarding EMV compliance efforts) says while the retailer response has been shockingly muted by comparison.

It finds that Walmart, Target, Home Depot, Walgreens and CVS Caremark were 100 per cent compliant as of this month, Kroger and Lowes are at 93 per cent in achieving compliance and although Costco completed an upgrade in 2015, just 13 per cent of its stores are compliant as of this month.

When we turn our attention to the consumer side, 56 per cent of card users polled have been seen to not care if a retailer's payment terminal is chip-enabled, with four per cent stating they will not shop at a retailer that hasn't upgraded card terminal security and 41 per cent not having chip-enabled cards.

The reasons could be on the execution side too but payment security stays a top concern, specially as fraudulent card activity has turned into a retailer’s responsibility and hence, a financial risk that previously fell on card issuers; albeit not an easy one in light of the tight margins that most retailers work with.

Plastic EMV will not achieve broad adoption in the US until 2020, as noted by Forrester too attributing to strong competition from more secure, encrypted, and tokenized transactions on digital wallets, NFC mobile and contactless EMV payments.

It felt that more secure forms of payments would command a larger share of volume transactions than EMV chip-and-PIN and EMV chip-and-signature card payment transactions by 2025.

Many factors have to be ironed out viz. the tricky PCI audit/assessment process, financial revenue sharing arrangements in the past between the PCI assessment firms and the merchant acquiring processors, and the propensity for security mishaps amplified by poor implementations of EMV chip payment applications, and vulnerability of EMV controls for everyone in the payment card ecosystem.

Previously, the Gartner’s research “Avoid Pitfalls with Payment Card Security Technologies and PCI also underlined that by year-end 2015, minimum five per cent of card issuers will suffer fraud on EMV cards due to improper implementations besides the possibility of conflict between existing and new token systems.

Yes they are harder to clone than their predecessor magnetic stripe cards but need for open security standards, streamlined certification processes, shared education on best implementation practices and supporting security technologies like tokenization and point-to-point encryption (P2PE) would impact the scenario a lot.

EMV could pay or not depending on how soon it can make the industry comfortable or depending on how soon new alternatives sweep in. The card stays in air till then.