In 2011, Visa and Mastercard announced plans to push for the adoption of chip-and-pin (EMV) by implementing a series of targeted incentives that are set to phase in between now and the end of 2015. The networks hope to compel card issuers, acquirers, processors and merchants to build up the necessary infrastructure to enable secure chip card transactions. The move has led many within the industry to predict the rapid growth of mobile and chip-card payment in the US. Such predictions overlook the influential role of merchants and the major resistance they are bound to put up as soon as they realize what Visa and Mastercard’s plans actually mean for them. Recent history shows that large merchants and retailers wield a tremendous amount of influence over the long term direction of the payment industry, and they aren’t going to support this initiative. Here’s why:
EMV doesn’t solve any problems for merchants in the US. Advocates of EMV insist that chip cards reduce fraud. To merchants, this argument is not compelling. In-house and centralized fraud management protocols have kept fraud related costs for card-present transactions very low in the United States. The growth of pin debit in the wake of the industry shifting Durbin Amendment has pushed card-present fraud even further from merchants’ radar screen. Meanwhile, EMV does not address card-not-present fraud. So, from the merchant’s perspective, EMV solves a non-existent problem. If upgrading to new terminals were cheap, that may not matter – but the costs to replace these terminals are substantial. The total cost of replacing US bussiness’ swipe readers with EMV enabled terminals has been estimated at around $6 billion – an expense that would land almost entirely on the books of merchants and retailers.
Simply put, EMV is a bad deal for merchants. They are being asked to foot the substantial costs of upgrading their payment terminals for nothing in return.
Merchants (especially major retailers, such as Target and Walmart) correctly view mobile payment technology (including NFC) as a huge future opportunity. They will eventually back this technology, and mobile and contactless payment will ultimately play an important role in the payments ecosystem, but not on terms that make little sense to merchants and certainly not on terms that serve goals of the payment networks at the merchant’s expense. For now, merchants are unsure which mobile payment format(s) and solution(s) will ultimately serve their needs and find support among consumers. For as long as they remain unsure – these new formats will find no meaningful traction.
In the mean time, US merchants will continue using their legacy swipe readers and US consumers will go on paying with their magnetic stripe cards. Consider checking out Echo, the first card that allows you to begin taking advantage of mobile wallet/payment technology in a swipe-card-dominated payment landscape.