Smart Card Talk : August 2011 : Executive Director’s Letter

Executive Director’s Letter

Dear members and friends of the Alliance,

Events that shake and rattle the foundations of the U.S. smart card industry are rare events–almost as rare as the East Coast experiencing a 5.9 earthquake and a major hurricane in the same week. You have to go back to August 27, 2004, when former President George W. Bush signed HSPD-12, the policy directive for the common identification standard for federal employees and contractors for the first such event in the new century. The second happened this month, on August 9, when Visa announced that they were planning to accelerate the migration for the U.S. to EMV contact AND contactless chip technology.

The publication of HSPD-12 almost exactly eight years ago set in motion seismic changes in the entire physical and logical security industry. The directive and resulting standards created aftershocks across the smart card industry landscape that influenced other federal ID programs like TWIC, FRAC, ePassport, and Trusted Traveler, as well as state-issued first responder IDs and EBT cards, and thousands of commercial enterprise badge programs that are using similar secure chip technology. The entire smart card industry felt the earth move once again with Visa’s announcement, and the shaking extends to the mobile payments industry as well.

Not to dwell on the earthquake analogy too strongly, but you could see the signs and feel the tension and the pressure in the air for the last year that something big was going to happen in the U.S. payments markets. It started in May 2010, with the United Nations Federal Credit Union announcing it would be issuing EMV chip cards for international traveler clients. This announcement created the ripple effect of one issuer after another doing the same. Another sign was the enthusiastic support from the payments brands, issuers, and processors to collaborate and publish the Smart Card Alliance Card Payments Roadmap in the U.S. white paper in February 2011. The collaborative nature of the project demonstrated an openness to talk about what EMV might mean for the U.S. market and started a dialog about important decisions related to online/offline authorization, PIN-based cardholder verification, and contact/contactless card interfaces that needed to be understood across the payments ecosystem. Perhaps, the biggest roadblock that was overcome was the Federal Reserve announcement of the Durbin Amendment decision on June 29, 2011, which settled the debate about interchange fees. We needed to get beyond the toxic rhetoric about how revenues from debit card transactions would be redistributed. While neither side is happy with how the pie was split, at least the issuers and the merchants came away with something that could justify further investment in mobile payments and security.

With this announcement by Visa and with expected announcements for their own EMV migration to follow by MasterCard, Discover, and American Express, a new era starts in the U.S. payments industry. At our EMV sessions during the 2011 Annual Conference last May, Dodd Roberts, the Executive Director of the Merchant Advisory Group (MAG), showed a spaghetti-like chart to illustrate all of the possible payments options for merchants. He appealed to the payment brands and card issuers on behalf of MAG’s major retailer members to show retailers what the EMV roadmap would look like, so they wouldn’t make the wrong investment at the point of sale again and again. With Visa linking the migration to EMV to an incentive for merchants to upgrade their POS terminals to support both contact and contactless payment methods, the merchant roadmap was made clear–invest in one terminal upgrade to EMV contact and contactless. This approach secures a place for contactless cards and NFC phones in the future and positions the U.S. to leapfrog the rest of the world into widespread NFC mobile payments adoption. Of course, wouldn’t it be ironic if NFC mobile payments turned out to be a uniquely U.S. phenomenon and the rest of the world remained wedded to contact chip and PIN cards?

On a final note, please take a few minutes to read the profile in this month’s newsletter, where we report on the results of the 2011 Annual Member Survey. The survey report is full of interesting statistics and revealing insights into what our members value most from the Smart Card Alliance and how members rate our performance in delivering relevant industry information and year-round networking opportunities, conference events, smart card training, and web-based resources to keep individuals and their companies informed and ahead of the rapidly evolving smart card marketplace.

Randy Vanderhoof
Executive Director