THE US EMV MIGRATION REPORT: What new chip cards mean for consumers, issuers, and merchants

BI Intelligence

Payment card fraud cost the US $7.9 billion last year alone, an increase of almost 60% from five years earlier. In response, major US card networks have implemented a set of security standards called EMV - which includes cards that store user information on a chip rather than a magnetic stripe - to make card-present payments more secure.

The migration, which was announced in 2011-12, went into effect this October, and likely won't be completed until the end of 2017, will affect various stakeholders. While issuing banks and merchants have to deal with the financial and logistical challenges of upgrading their payment cards to chip cards and terminals to readers that accept them, users must adapt to a new system of paying entirely. And until the EMV migration is complete, the once-seamless payment process will be disjointed: Users won't have a consistent card type or be able to pay the same way from store-to-store.

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In a new report from BI Intelligence, we take a close look at the US migration to EMV standards and determine whether its worthwhile for merchants to upgrade. We also assess the inconsistencies and inconveniences that EMV migration could cause the average consumer and retailer, and its potential to shift consumers toward new forms of payment technology, like mobile wallets.

Here are some key takeaways from the report:

• The US formally migrated to EMV card security standards on October 1, 2015, but the full migration won't be completed until 2017. That's because the migration affects multiple stakeholders. Banks, for instance, must upgrade users to more expensive chip-based cards, while merchants have to adapt their point-of-sale (POS) terminals to EMV-compliant ones.
• Fraud will move to the weakest channel. In 2014, the US generated almost half of the world's total card fraud despite only comprising one-quarter of transactions. That's because the US had the least secure payment card ecosystem. Once EMV is fully adopted in the US, fraud will move yet again, this time to online and mobile channels. In 2014, only 42% of fraud came from digital channels. In 2015, that number grew to 55%, and it's continuing to expand.
• The disjointed payment experience that EMV provides could inadvertently increase mobile payment use. Mobile wallets, like Apple Pay, Android Pay, and Samsung Pay, have suffered from a lag in adoption. However, longer transaction times and a confusing payment experience with EMV could push users to equally secure but more convenient mobile platforms

In full, the report:

• Shows what prompted major card networks to develop EMV standards and why the US was the last major card market to migrate to them
• Explains why chip cards are more secure than magnetic stripe
• Provides data showing what's impacting each stakeholder in the EMV migration
• Provides data forecasting when the US will be fully migrated to EMV
• Examines how EMV could impact the payments tech industry and why it could push users towards mobile payments
• Explains why, for merchants, upgrading to EMV is beneficial despite the inconveniences and expenses that come with it

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