Judging solely by the headlines, you could be forgiven for thinking that the U.S. migration to EMV chip cards has been a complete catastrophe. The truth, as usual, is a bit more complicated.
Let’s start with the good news. By the end of 2015, Mercator Advisory Group estimates that more than 300 million general purpose credit cards contained EMV chips. That represents approximately 58% of the total number of general purpose credit cards in the U.S. and a significant increase over the 32% penetration rate reached in 2014. Building on that success, Mercator expects virtually every general purpose credit card in the U.S. to contain a chip within the next three years.
On the merchant side, significant progress has been made in the replacement of legacy point-of-sale (POS) terminals with new hardware that is capable of supporting EMV transactions. Indeed, Mercator estimates that nearly 50% of customer-facing POS terminals in market by the end of 2015 contained all of the hardware necessary to accept chip cards. This is a significant achievement in that it lays the groundwork for not only chip card acceptance but also the acceptance of other emerging payment forms that also require technology upgrades at the POS, such as near field communication (NFC).
Despite the progress made by credit card issuers and merchants in migration to EMV, we didn’t see a significant shift in credit card transaction volume from magnetic-stripe cards to chip cards in 2015. Even after the October liability shift, consumers were still swiping rather than dipping. According to Mercator estimates, chip card transactions accounted for only 15% of the total volume of card-present consumer credit card transactions in 2015.
The reason for this is simple—most merchants with new POS terminals did not enable those terminals to process chip card transactions. In fact, Mercator estimates that only 19% of customer-facing POS terminals in the U.S. had been tested, certified, and enabled for EMV by the end of 2015. Many of the merchants that chose not to enable their EMV-capable terminals made that choice because of resource constraints and a desire to avoid disrupting their customers’ holiday shopping.
Mercator Advisory Group expects that in 2016 issuers and merchants will continue to make progress migrating to EMV and consumers will become much more comfortable dipping their new chip cards. Progress will be especially acute in the enablement of dormant EMV-capable terminals, which should lead to a notable increase in the overall volume of chip card transactions.
When we look beyond 2016 and contemplate the long-term impacts that EMV may have on the U.S. payments landscape, several intriguing questions present themselves:
- How will fraudsters react? EMV migration in other countries had the intended result of curtailing counterfeit card fraud but generally was followed by increases in other types of fraud such as card-not-present fraud and new account fraud. Will that shift by fraudsters to other attack vectors occur in the U.S.?
- Will payments security become a point of differentiation for cardholders? Continual data breaches and the switch to EMV have put security front and center. Will different payment security features (biometrics, tokenization, etc.) become differentiators for consumers?
- Will consumers become more interested in alternative payment options? Dipping a card is a different and potentially more time-consuming interaction for cardholders. Will this change spur more interest in faster or more seamless payment alternatives like contactless cards or mobile payments?
Want to know more about the short- and long-term impacts of the U.S. migration to EMV? Alex Johnson, Director of the Credit Advisory Service at Mercator Advisory Group, will be leading a panel on the current state and future of EMV at the All Payments Expo in New Orleans, March 21–26, 2016.