What’s Holding Back Retailers From Adopting Chip And PIN In The U.S.?

I heard recently that the adoption of chip and PIN technologies for credit and debit cards can cut fraud losses by 60%.  In Brazil, for example, almost 100% of cards have been converted to chip and PIN and counterfeit card fraud is practically nonexistent. The reduction of fraud can be attributed to embedded microchips in credit and debit cards. These chips significantly enhance fraud prevention over traditional magnetic stripe cards because the chips must match a customer’s PIN, otherwise the point-of-sale (POS) transaction is rejected. Known as EMV. (for Europay, MasterCard and Visa), this technology has been touted by analysts as the ultimate payment solution for almost two decades.

So what’s holding merchants back from embracing chip and PIN technology? Many merchants have been apprehensive to adopt EMV because of the cost attached to investing in the new card infrastructure. Javelin Strategy & Research estimates the cost of deployment for EMV in the U.S. at about $8.6 billion. POS terminals require additional features to read the card, and legacy back-office systems can be expensive to upgrade. While Europe was quick to embrace EMV technology because their telecommunications infrastructure didn’t provide for reliable magnetic strip transactions, the U.S. has been slower to make the investment to convert legacy infrastructure.

However, U.S. merchants’ resistance to chip and PIN technology may be ending. Recent escalations in card fraud have propelled Visa to implement a new migration plan to encourage U.S. merchants’ support of EMV. If merchants don’t adopt the new technology by October 2015, they risk absorbing the cost of all disputed credit card transactions they initiate. MasterCard has followed suit with a new roadmap for rolling out EMV in the U.S., a step that MasterCard believes will spur innovations in digital payments.


Further propelling chip and PIN adoption is the rise in mobile commerce. Most all EMV terminals also support Near Field Communications (NFC) transactions, essentially allowing consumers to use their NFC-enabled phones and devices as mobile wallets.  NFC-enabled terminals saw a significant increase in sales in 2011, and 40,000 NFC-enabled terminals have been deployed since the onset of NFC technology. Some POS terminals not only support chip & PIN and NFC, but they also support magnetic stripe transactions.  

These hybrid devices make it much more cost-effective for merchants to make the transition to newer technologies.  ABI Research analyst John Devlin predicts the number of NFC handsets to increase from approximately 34 million this year to about 80 million next year. Furthermore, In-Stat, a global market intelligence firm, predicts there will be over 1 billion NFC-enabled mobile devices by 2015. With the introduction of Google’s Android mobile application, Google Wallet, on the Nexus S 4G phone, carriers such as AT&T and Verizon have jumped aboard the NFC bandwagon.  They have created Isis, a virtual wallet and payment system set to launch in 2012, that will eliminate the need to carry “credit cards, debit cards, reward cards, coupons, tickets and transit passes.”

A recent Retail Touch Points piece mentions how, as of January 2012, Wal-Mart, with 10,130 stores and $443.9 billion in sales, is ready to embrace EMV.  Wal-Mart has purchased EMV-enabled terminals for its 4,000+ U.S. stores.  Wal-Mart considers EMV to be the most secure and convenient form of payment. It sees EMV implementation as an investment that will eventually eliminate many fraud-related costs, such as PCI compliance expenses. In fact, in a recent Smart Card Alliance forum, Jamie Henry, director of payment services for Wal-Mart, says the retailer is a “proponent” of EMV and is opposed to investing in end-to-end encryption and tokenization, which he believes is a “band-aid” solution. 

The landscape of bank card fraud is certainly shifting, but it will take some time for EMV to be fully embraced by all card issuers and merchants. Although merchants have been apprehensive to adopt EMV payments, the recent adoption of NFC-enabled phones, retailers’ adoption of EMV terminals, Visa’s new migration plans and MasterCard’s roadmap are driving merchants to reconsider implementation and deployment of EMV for payments.

Robin Green leads FICO’s Global Retail and Consumer Branded Goods Industries, working the with world’s leading retail and consumer goods firms to drive greater precision analytics-driven marketing decisions.  With over 20 years working to help some of the world’s largest brands deliver a customer-centric experience, he brings unique insight and practical advice to those looking to improve marketing performance and adopt analytic solutions.

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