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Is the U.S. market tipping towards EMV?

Two major US Banks, JP Morgan Chase and Wells Fargo, are to pilot EMV cards with a select group of cardholders

April 18, 2011 by Lachlan Gunn — Director, BenAlpin Ltd

There have been increasing calls for the USA to adopt the EMV (Chip and PIN) standard for cards and terminals, as other parts of the world continue with the roll out - according to the European ATM Security Team (EAST) 97% of Europe's 398,000 ATMs are now EMV compliant, as are 75% of the 90,000 ATMs in Russia and 56% of the 59,000 ATMs in Canada. The equivalent figure for the approximately 420,000 ATMs in the USA is I believe 0%. So it was with interest that I read an article published by the Mail Online a couple of days ago. It seems that two of the largest US banks, JP Morgan Chase and Wells Fargo will start to trial EMV cards. The trial will be available to larger business customers and frequent travellers. Why are they doing this?

One driver for such change is fraud, in particular card skimming, and the U.S. market is likely to increasingly become a honeypot for skimming fraudsters as they move there to practise techniques honed in other parts of the world before and during the shift towards the EMV. As recently reported by EAST in their 2010 European ATM Crime Report, losses due to card skimming at ATMs in Europe have again fallen, for the sixth consecutive half year period, while an increasing proportion of such losses are now international, i.e. occuring outside the card issuer's country. It would be interesting to see similar statistics for the USA.

The other driver for change to EMV is of course that the holders of stripe only cards are increasingly unable to use their cards for transactions at Chip only terminals. The article in the Mail Online quotes a study that has quantified the impact of such lost transactions - according to financial advisory firm Aite Group a 2009 study found that issues with U.S. cards not being accepted abroad cost $4 billion in missed transactions in 2008. Since then there has been significant further roll out of EMV payment terminals globally and so I'm guessing that the equivalent figure for 2010 will have been a lot larger. And then of course there is the matter of reputational risk as disgruntled card holders realise that their bank is issuing them with cards that are not fit for purpose in all global markets.

Two of the largest U.S. banks have announced that are to start EMV card pilots, I wonder how long it will take others to follow? This may seem like a small step, but it is an important one. As the cost of fraud, combined with the cost of lost transactions, rises when compared to the costs of EMV implementation, the tipping point for the U.S. market may soon be reached.