Nothing about change is easy, fast or seamless.
This has certainly been the case with the EMV transition over the last year. There’s been a significant amount of difficulty and disorganization that’s occurred since the landmark liability shift of October 1, 2015, and understandably so.
The path to a chip-enabled payment environment was a massive undertaking that was a complicated collaboration between the various payment ecosystem players, such as financial institutions, payment system providers, retailers, plastic providers and software providers. At some point of the journey, there were challenges that affected each of the stakeholders:
• Merchants had difficulty making terminal changes and getting prioritized for certification, which were long
• Issuers struggled with getting up to speed about EMV and how to transition their card portfolios
• Aligning vendor resources and schedules appeared difficult to coordinate
• Consumers weren’t happy with the length of the transaction times
By any measure, it’s taken a monumental effort to get as far as we have. And just how far is that?
• Some 700 million chip-enabled cards have entered the market since the liability shift
• One-third of US retailers have chip-enabled terminals
• Counterfeit fraud has decreased by 54 percent at retailers that are EMV-compliant
• US is better positioned to be in the mobile payment space
• Consumers are much more accustomed to using chip technology
Despite the challenges along the way, I’d say that’s an exemplary progress report. There’s still work to be done, but we’ve come a long way in just one year.
The road ahead
When looking at what comes next, it’s useful to step back and review the drivers behind the US transition to EMV in the first place. Remember there were a series of pretty drastic data breaches by large merchants across the US, causing a lot of grief for consumers and historic losses for financial institutions that had to replace millions of compromised cards.
On the heels of these breaches, the transition to EMV was meant to do three things:
1. Prevent counterfeit fraud
2. Position the ecosystem to leverage tokenization and mobile payments
3. Provide security and convenience for international travelers
So far, we’ve gotten good traction on numbers one and three. Merchants and issuers have reported considerable declines in counterfeit fraud (see the bullet list above). Likewise, US cardholders can now use their credit and debit cards while traveling abroad — something most Americans couldn’t do prior to the EMV transition.
But what about number two? As EMV becomes the norm for payment transactions, mobile and contactless solutions are not far behind. This is because the global security standards for EMV also integrate with the mobile technologies in applications such as Apple Pay and Samsung Pay. The train is slowly leaving the station, and it hasn’t picked up momentum … yet. It’s not a priority among retailers as they’re still getting their terminals EMV-compliant, and customers won’t start clamoring for it until there’s a robust adoption rate.
In the meantime…
So where does that leave us in the meantime, between the status quo of EMV and the future state of mobile payment solutions?
As I said, there’s still work to be done to optimize EMV adoption in the payment ecosystem. Card issuers are aggressively working to meet the deadlines for the ATM liability shift now that they’ve migrated their card portfolios.
At the same time, they’re focusing on generating card growth and usage, in addition to reducing expenses. How can they do that in this environment? Instant issuance.
If instant issuance wasn’t top of mind as a distribution strategy during the chip transition, it should be considered to drive faster card activation and usage among account holders. Instead of waiting up to 10 days to receive a new card during account opening, account holders can walk away with card in hand, enabling them to start making purchases immediately.
Instant issuance also has security benefits. Eliminating the 10-day processing period reduces the chances of a card being stolen in the mail.
And, it also reduces the expense to mail new and lost stolen cards.
Most importantly, though, instant issuance puts the financial institution in control of the conversation and a way to influence the account holder’s engagement and usage of the card.
Between where we are now (continued EMV adoption) and where we’re going (mobile payments), I see instant issuance taking center stage for financial institutions and account holders alike. Once adoption rates hit the saturation point, account holders will start demanding and expecting it as part of their banking experience.