KEY POINTS

  • Major card networks devised a set of security standards called EMV to make card-present payments more secure. At the simplest level, EMV cards store user information on a chip rather than a magnetic stripe. In addition, data transmitted during an EMV transaction is encrypted and dynamic, which makes it harder to steal and reuse sensitive information.  
  • The US formally migrated to EMV on October 1, 2015, but the full migration won’t be completed until 2017. That’s because the migration affects multiple stakeholders. Banks, for instance, must upgrade users to more expensive chip-based cards, while merchants have to adapt their point-of-sale (POS) terminals to EMV-compliant ones. 
  • Fraud will move to the weakest channel. In 2014, the US generated almost half of the world’s total card fraud despite only comprising one-quarter of transactions. That's because the US had the least secure payment card ecosystem. Once EMV is fully adopted in the US, fraud will move yet again, this time to online and mobile channels. In 2014, only 42% of fraud came from digital channels. In 2015, that number grew to 55%, and it's continuing to expand.
  • The disjointed payment experience that EMV provides could inadvertently increase mobile payment use. Mobile wallets, like Apple Pay, Android Pay, and Samsung Pay, have suffered from a lag in adoption. However, longer transaction times and a confusing payment experience with EMV could push users to equally secure but more convenient mobile platforms.
  • Merchants will benefit from upgrading to EMV. In addition to the security benefits EMV provides to in-store transactions, the card-present payment experience will become more consistent as a larger number of merchants upgrade. That consistency will help alleviate some of the initial EMV-based customer dissatisfaction, providing an additional benefit to merchants beyond just security upgrades. 

Introduction

The US is in the midst of a massive shift to a new payments technology. Over the past two decades, global card fraud has been steadily rising, which has ultimately led major card networks to devise a new set of security standards that would better protect the data of payment card users. These standards are called EMV — short for Europay, MasterCard, and Visa — and by the end of 2015, they will be adopted by nearly all developed payment card markets worldwide.

EMV technology changes the [...]