February 2014 Alliance Member Bulletin
Executive Director’s Corner
EMV Chip Cards vs. Mobile: Making Too Much of a 1% Solution
My position on the future of mobile payments and its potential promise to fundamentally change how consumers interact with their financial institutions and merchants has never wavered. I have been patiently holding onto my enthusiasm for a “quick fix” to get to the time when NFC mobile wallets are ubiquitous–through six years of pilots involving NFC stickers, dongles, microSD plug-ins, phone sleeves and today’s fully integrated UICC-enabled NFC handsets. The wait has not been without its starts and stops along the way, with a few highs (Isis) and lows (Google Wallet). NFC is also competing against a host of other non-NFC wallet innovators like PayPal, LevelUp, and MCX. Plus, we can’t ignore the annual “wait and see” for what Apple will do, adding more uncertainty to the mix. Nothing about payments is easy, so how could anyone expect NFC mobile proximity payments or any of the alternative mobile wallets to be different?
To complicate matters even further, EMV chip cards come into the U.S. market right in the middle of this mobile payments renaissance. To be fair, EMV is not the new shiny payments object catching everyone’s attention. It’s been around for about 20 years and deployed in 80 countries already. If not for the financial markets meltdown and subsequent recession in 2008, I believe we would all be carrying EMV cards today. EMV chip technology doesn’t deserve the criticism it’s getting today from so-called payments experts who argue that the U.S. would be better off leapfrogging EMV cards and going straight to mobile. The fraud situation in the U.S. payments industry is critical and we can’t waste time idolizing a solution that would be used by 1% of consumers at the expense of the 99%.
Let me elaborate on this (and I confess in advance my math may be a bit fuzzy for effect). Critics of EMV claim that EMV comes up short because it does not address eCommerce fraud like mobile payments would; and since experts forecast that soon everyone will forgo physical stores and do all of their shopping online, the mobile device will replace cards as the preferred method of payments across America. The last time I checked, however, eCommerce comprised about 16% of card transactions and mobile about 10% of eCommerce; therefore mobile payments amount to about 1% of all card transactions. If you assume that in five years, mobile transactions increase by 500% from today’s number, mobile could surpass 5% and maybe even get closer to 10% of transactions. This still results in only one out of every 10 purchases being by a mobile phone. The other 90% presumably would continue to use insecure mag stripe cards. Considering that people over the age of 55 control 77% of the U.S. wealth–almost $2 trillion in buying power–I don’t see many of these people trading in their thick “George Costanza” wallets for sleek smart phones to do their shopping.
When I hear and read that EMV and cards are no longer needed because mobile is going to solve all our payments security problems, I’m reminded of the stark reality that we still have to fix the card fraud problem we have now. EMV cards, today, will take care of the 90+% of consumers who still shop in retail stores and use physical wallets. With EMV comes the much needed improvements in merchant terminals and POS systems that are required to satisfy the mobile 1% who could someday become the 10% (and eventually maybe even make it to the 90%). But without EMV, even the mobile 1% are going to find a hard time using their phones except online. EMV is a solution for the entire industry and for all consumers, not just for the 1% using phones or buying online.
In The Spotlight
This month the Smart Card Alliance profiles COE recipient ABnote, part of American Banknote, a well-known provider of secure products and solutions. With facilities in North America, Europe, Africa, and Australasia, ABnote offers solutions to global customers including financial, retail, government, and many other commercial markets.
What is your company’s business profile and its offerings?
Founded in 1795 as one of the nation’s first security printers, ABnote has continually reinvented itself to adapt to the changing world. Today, ABnote is one of the world’s premier manufacturers of plastic cards and provider of complementary solutions such as Financial Instant Issuance and Mobile Payment. Our products span a wide range of markets and applications, including retail, financial, hospitality, transit, education and identification. Our global facilities are certified by all major financial card brands for mag stripe and chip card production, personalization and Trusted Service Manager (TSM) services, with the capacity to produce well over 1 billion cards per year. ABnote is a leader in the development of TSM & NFC technologies, with a dedicated mobile development team that works closely with device manufacturers, chip providers, mobile network operators and other technology leaders. We operate certified TSM’s throughout the world for the secure provisioning of EMV cards and mobile devices.
What role does smart card technology play in your business?
ABnote is a leading supplier of contact, contactless and dual interface smart cards around the world. ABnote has also successfully deployed tens of millions of EMV and chip cards across multiple industries. Because ABnote is agnostic to chip or OS technology used in smart cards and also because we maintain relationships with the world’s leading silicon manufacturers, we are able to provide the most appropriate solution for customer applications. We support all standard module sizes and configurations, and can manufacture smart cards in a variety of form factors and configurations. As part of our commitment to providing comprehensive services, we have a dedicated design team that works with customers to ensure that their requirements for card design, engineering and security are successful met.
What trends do you see developing in your market?
There are a number of trends we see in our market, and we are expecting that some of these will begin to converge. We expect that the upcoming EMV migration in the U.S. will be a key driver for growth for smart card usage in the U.S. The growing use of smart cards and the proliferation of NFC technology are now well established trends in multiple markets. And of course the ongoing challenge of ensuring security and reducing fraud has become even more critical as hackers or fraudsters become increasingly sophisticated and clever. One of the themes that underlines these trends is the growth of multi-application cards and related solutions. For example, providing a single card that can be used as an identification card, debit or credit card, and a gift card in conjunction with a mobile application with complementary or even duplicate applications is something that consumers are demanding.
What must you overcome to leverage those trends?
When looking at EMV, the complexity of POS infrastructure in the United States, the projected costs for issuers and merchants, and the uncertainty surrounding the regulatory requirements are some of our concerns. Although increasing awareness of the challenges of security and the announced liability shift will impact this evolution, the complexity of our infrastructure remains a challenge. Because of our global presence, and our experience with EMV migration in other parts of the world, ABnote is not only well prepared for this transition but also provides significant expertise in assisting Issuers make the right EMV migration choices. The adoption of NFC technology and multi-application cards raises challenges in defining a credible business case for issuers and merchants. As consumers continue to look for the solution that gives them convenience, access to services, security and even status, the range of options and the complexity of the integrated ecosystem are daunting from both a technical and business viewpoint. Instead of supporting all consumer wishes, issuers, merchants and other vendors will have to identify and implement the most appropriate solution for their market and their short and long-term business strategy.
At ABnote, we know how to deploy complex solutions, and have invested in the equipment and resources for these opportunities. We are committed to developing modular and scalable solutions using open architecture, which will give our customers the flexibility and tools they require to meet the unique needs of their customers.
Visit Abnote at http://www.abnote.com
New White Paper from Payments Council
The Payments Council published a new white paper, Card-Not-Present Fraud: A Primer on Trends and Authentication Processes, this month to educate payment industry stakeholders about the impact and need to further address card-not-present fraud in conjunction with migration to EMV in the U.S.
The white paper provides:
- An overview of the predicted growth of CNP transactions due to increasing popularity of e-commerce transactions and the migration of EMV chip payments
- Examples of authentication methods that provide a channel through which the cardholder can be verified, adding additional security for CNP transactions
- A discussion on frequency and types of card fraud, including first-party fraud, CNP fraud, counterfeit fraud, lost and stolen card fraud, mail and non-receipt fraud and identity theft
- An analysis of CNP fraud trends in U.K., France and Australia at different stages of EMV implementation
Ryan Barnes (TSYS) and Sarah Hartman (TSYS) led the project, with an active project team including: Philip Andreae (Oberthur Technologies); Debbie Baxley (Capgemini); Philippe Benitez (Gemalto); Jose Correa (NXP); Allen Friedman (TSYS); Astrid Wang-Reboud (Gemalto). Member organizations involved in the development and review included: ABnote; Capgemini; CH2M HILL; Chase; CPI Card Group; First Data Corporation; Gemalto; Giesecke & Devrient; Heartland Payment Systems; INSIDE Secure; MasterCard; NXP Semiconductors; Oberthur Technologies; SHAZAM; TSYS; Vantiv; Visa Inc..
EMV 101 Webinar Available for Download
The EMV Migration Forum hosted a web seminar last month, with a record number of attendees — 650 — participating. Guy Berg of MasterCard served as the presenter. A recording of the webinar, as well as presentations from the event, are available at http://www.emv-connection.com/emv-101-fundamentals-of-emv-chip-payments. EMV resources for issuers, merchants, and acquirers/processors are available free of charge by visiting the EMV Connection web site at http://www.emv-connection.com.
Speaker and Topic Proposals Now Being Accepted
Proposals for speakers and topics for this year’s NFC Solutions Summit 2014 are now being accepted on the conference website. “Secure Mobile Payments and Non-Financial NFC Applications” will be held June 3-4 at the Renaissance Arboretum Hotel in Austin, Texas, co-presented with NFC Forum and NFC World Congress. The deadline for submission is March 10.