It’s been a long time coming, but EMV is finally here.
MPD CEO Karen Webster spoke with Philippe Benitez, VP of Marketing at Gemalto North America, about the very real implications now faced by card issuers and merchants who maybe didn’t spend the time and effort they should have getting ready, as well as a whole new world of expansive benefits for those who are EMV-ready on Day 1… And how those benefits may go well beyond EMV itself.
KW: Here we are, the first day of the liability shift in the U.S. We’ve now moved officially to a chip card environment. We have a lot to talk about…but let’s start with a basic question: Who is ready today?
PB: Many, many thousands of issuers and financial institutions are ready. Issuers large and small have been working on migrating their cardholders over the last 18 months; we’re seeing the first wave of them that started early in the process and are ready for EMV.
MasterCard announced last year in a press release that by the end of this year, we would be seeing more than 575 million EMV cards in circulation. I believe we will see that prediction fulfilled in that time frame. A lot more issuers have migrated than we could have expected.
KW: That is a big number, but it suggests — given the number of cards in circulation here in the U.S., which is in the billions — we still have work to do.
We commonly talk about the implications of the liability shift from the perspective of who actually is responsible in the event of fraudulent activity at the point of sale, but what about from the consumer’s perspective? They’ve been hearing that this is coming, and that chip cards are safer. Are issuers that haven’t migrated yet likely to face a liability shift of a different sort in not being top-of-wallet for the consumer?
PB: In the consumer’s mind, the chip will represent a higher level of security, and they may very well choose to prefer a chip card over the mag stripe cards that haven’t yet migrated. Therefore, issuers may see a drop in preference or find themselves at the bottom of the wallet if they have they not yet migrated to EMV.
KW: We’re all creatures of habit, and the habit in the U.S. for a very, very long time has been swipe. It’s a prehistoric mag stripe card, but it works; it’s easy; it’s quick; everyone knows how to do it. And that is going to be very different starting today.
What are you anticipating in terms of the consumer behavior and their experience at the point of sale, as this gets to be a little bit more familiar to them?
PB: We’re going to see forgotten cards at the point of sale, because dipping is a slower process than swiping.
Given the habit that consumers have of keeping the card in their hand, swiping, and putting it right back in their wallet, the change to leaving the card in the terminal will cause consumers to forget their cards in the beginning, which will lead to a certain level of inconvenience. That’s where consumer education becomes paramount. I’ve noticed that merchants are already helping consumers at the point of sale figure out how this new process is going to work.
Beyond the pre-swipe, and the fact that they have to dip rather than swipe, I think what this will introduce is the deployment of contactless as a new payment mechanism — because tapping is as fast as swiping.
KW: You’re saying that consumers will experience — at least from their perspective — degradation in the point-of-sale experience; therefore, they will welcome an alternative that is quick…and that solution is contactless.
Except that there are all these chip cards in the market that aren’t contactless… So how do those two things reconcile themselves?
PB: What we’ve seen in other parts of the world is the first wave of migration from mag to chip is done with contact chip cards. Those cards are deployed to consumers en masse, just like what is happening here in the U.S.; and then, as the ecosystem completes the upgrade to EMV, the next wave of issuance is in contactless.
Merchants and issuers have measurable benefits from migrating to contactless in terms of increased spend because consumers tend to use contactless cards for more of their everyday purchases, simply because it’s faster than reaching for their wallet and paying cash for small purchases, or using a contact chip card instead of the contactless card that they have obtained.
What we’ve seen everywhere else in the world is, in the second wave of issuance, FIs moving consumers to contactless cards after they deploy chip.
KW: Where does mobile fit in that flow?
PB: Where it fits is exactly what we’re seeing here in the United States, which is it being deployed in parallel with cards.
The U.S. is very much in advance of other geographies in terms of deploying mobile payments, with the Apple Pays and the Samsung Pays and all of the various mobile implementations of EMV. Consumers will experience, at the point of sale where merchants have enabled it, that contactless is quicker and easier than other available options in their wallet.
KW: What do you see happening in the landscape over the next year with respect to issuers’ decisions about this move to EMV and their decisions about cards — how they’re allocating their spend to support this migration? What are you hearing from your customers?
PB: That they’re interested in, for certain kinds of portfolios, considering contactless technology as the next phase after deploying chip. And, of course, they’re all very busy deploying their mobile strategy, with the various mobile EMV options enabled in modern handsets.
The two tracks are happening in parallel: The migration to chip on cards, and the migration to mobile EMV on payment-capable handsets. And, for specific portfolios, contactless for cards.
KW: Do you think that issuers will take a look at their customer portfolio and how it can be affected with respect to dual-interface cards?
PB: I think it’s going to be a segmented approach for specific tiers of their cardmembers and the levels of spend or travel that these cardmembers have. Deploying contactless cards to those groups will raise their spend even higher than they already were because of the simplicity, convenience and added speed of using contactless.
What has been reported in other markets is an increase in net spend between 10 and 40 percent, depending on the type of portfolio. So it’s very well proven use case to migrate to contactless.
KW: What are some of the other things that you think we should be paying attention to as we now think about the next year, as the process begins and we move through this process of a chip-enabled card market here in the U.S.?
PB: One thing we’re going to hear a lot more about is tokenization — both in terms of merchant tokenization to protect cards at rest, especially for online and eCommerce, and tokenized payments, especially as it relates to mobile and in-app payments. All of this is still layered on top of EMV, but we’re going to hear more about it because, as EMV is deployed in the physical space at the point of sale, fraud will naturally migrate online, where it is still easier for fraudsters to reach data and obtain large numbers of cards.
What we’re going to see is investments also by the merchants, in terms of merchant tokenization, to protect these cards on file and the data at rest, and investments from FIs to enable tokenized payments in various form factors — including, possibly, on cards themselves.
KW: How would that work?
PB: It would work in the same way as it works today on a mobile device. The PAN number in the card would be replaced by a token value that would be domain-controlled for only a specific kind of transaction occurring at the point of sale. In the case of compromise or data breach, that token value would be unusable for any other purpose, including online. It would prevent these PAN numbers from being used for purposes other than face-to-face point of sale transactions.
Through an online capture of the PAN number that was compromised, the authorization system would decline the transaction because the PAN number is not authorized for online use; it is only authorized for point-of-sale use, in the case of the card tokenization use case.
Consumers would potentially obtain a token for online use, if that’s what they needed, or the payment token in their mobile device could be used for in-app payments and eCommerce. Because that token would be enabled for those use cases.
KW: Wow. There’s a lot to learn and understand about the application of EMV and tokenization… I hadn’t thought about that, but that’s an interesting use case to explore.
The next year is certainly going to be one that will also be very interesting as we all get used to life at the point of sale in a chip-enabled world, and see how merchants, issuers, and consumers all adapt.
Philippe Benitez, Vice President of Marketing and Business Development, Gemalto North America
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