Why the US Will Not Adopt EMV (Chip & PIN)

Let’s just start with the basics, money;

There are ~1.5 BILLION credit cards in the US, and a replacement card is between $3 – $5.  So you’re looking at an expense between $4.5 and $7.5 billion for that alone.  Now add into that the cost of replacing ~10 million payment terminals to ACCEPT the new cards, at a cost of ~$50 – $100 each, and that price-tag goes up by another $0.5 – $1 billion.  Finally, every bank must replace / upgrade their back-end systems to PROCESS these new transactions, and I’m not even going to try to guess the cost (it’s a lot).

Yes this will be spread out of a number of years, but that’s like saying you’d like to get punched in the mouth a little bit at a time.  No alternative is pleasant.

Cost aside, why would the banks make this expense when the main driving factor behind EMV is being negated on a daily basis by innovations in payment technology?  Innovations such as mobile payment applications, and far more secure alternatives to the Chip & PIN itself, will drive the US to abandon their plans for EMV in favour of solutions that have a far longer shelf-life, are more secure, include Card-Not-Present (CNP) transactions (e.g. e-commerce), AND are not just a patch/fix to a 60+ year old technology.

The EMV concept itself was first put into real-world practice in France in 1992 – yes, 21 YEARS ago – and is now the de facto standard in over 100 countries globally.  Except the US of course, who still rely on the magnetic strip first introduced by IBM in the 1960s.

This mag stripe method is the major cause of card-present (CP) fraud globally, which is why the US has been under increasing pressure to make the change.  The issuing banks in the US, however, are very powerful in their own right, and have managed to delay things long enough to now have a valid reason to stop the plans altogether.

Good for them.

The need for PIN authentication will not go away any time soon, but the need for any payment terminal or payment application to ever SEE that number will.  This is an enormous game-changer for both the banks, and the end users.

Chip & PIN transactions are cheaper than magnetic strip transactions for one reason; less fraud.  However, you can’t use chip & PIN for e-commerce, where things like the CVV code, Verified by Visa, or 3-D Secure are used to similar, though limited, effect.

This restricts their usage to specific card brands, but this brave new world of innovation where the card brands are no longer the only game in town, a more ubiquitous PIN method is required that’s not only secure, but seamless, portable to legacy technologies, and affordable. Something like this; www.mypinpad.co.uk.

Suddenly:

  1. Expensive card-not-present transactions become cheaper card-present transactions saving millions for e-commerce
  2. Legacy payment terminals that are not yet End of Life (EoL) can be kept, saving brick & mortar merchants millions
  3. ATM payment become far less prone to fraud (under certain circumstances)
  4. Mobile payments become far more secure
  5. Liability shift is now firmly with the issuing banks

All of this is great stuff, and makes me wonder what’s next!

Anyone see any similar technologies out there in the wild?

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