- The massive data breach at Target stores in late 2013 is only a spectacular recent example of a deep-seated card fraud problem in the U.S. In 2013, fraud in the U.S. cost $6.8 billion and accounted for 51% of global card fraud losses. That amount is completely out of proportion to the U.S. share of global card transaction volume: 24%.
- Card networks are pushing for a solution — the adoption of a 20-year-old technology known as EMV, which places a smart chip on credit cards. Large-scale implementation of the standard is on the way, and will affect every player in the payments value chain.
- We estimate that the total cost of implementing EMV in the U.S. will be about $11 billion, representing a huge cost — but also a big opportunity for payment technology and service providers.
- It will be a relatively long process to turn over existing technology to the EMV standard, taking at least four years. The full rollout will near completion around 2018, in the best-case scenario. We believe penetration of EMV-compatible payment terminals in the US will cross the 50%-mark in 2015.
- The EMV migration will not necessarily benefit all players. It will alleviate fraud perpetrated with counterfeit credit cards. But it will likely lead to a spike in "card-not-present fraud," which may hurt U.S. e-commerce retailers. Card-not-present refers to transactions, like online or phoned-in purchases, which are made without the merchant being able to see the actual card.
- There's also a great deal of uncertainty over which variant of chip card transaction will catch on in the U.S. market. Banks that issue credit cards will be able to decide between "chip-and-sign," in which consumers plug their chip cards into special terminals, but still sign receipts, or "chip-and-PIN," which will require people to enter a PIN number instead of a signature.
- With such high costs and an uncertain timeline, the rollout of EMV might turn out to be a Pyrrhic victory for many of the players involved, even taking into account the fraud cost reduction. Payments technology is evolving so quickly that by the time the U.S. starts to see payoff from adopting EMV there may be a better solution available, such as biometric authentication.
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