Wednesday, February 6, 2013

US EMV Pulling out of the Station

At this year's Smart Card Alliance 2013 Payments Summit, at least one thing is clear in this complex US payments environment.  The EMV way of payment device authentication and management is coming to the US.  For years, constituents have been filling the water tanker and the coal car and assembling the passenger and box cars on the track.  At last, there's a head of steam up and the train is in motion.

This is good news for the US payments infrastructure and as Vantiv's Patty Walters eloquently and forcefully put it, "good for our children and grandchildren."  Secure payments is a no-BS, no-kidding component of social and national infrastructure and EMV is a proven method of improving payment security.  

For a country that's been woefully short on infrastructure investment (lights out at the shared national festival of the Super Bowl? Really?!) this is progress.

Steam Train, Amtrak, or Tres Grand Vitesse?

But there are multiple forks and switches in the track ahead and it remains unclear which track the train will take.  

It's also unclear how strong the engine is going to be.  Will we have an out-of-date, steam-powered approach?  EMV's been around for awhile.  Are we going to "rush into the Nineties?" with a single purpose approach?

Will we do a little better but still underinvest to create an Amtrak-like scheme that limps along, serving only a subset of the need?  

Or will we have a high speed system like the French TGV and its feeder rail systems?

EMV is a security platform that can be applied to use cases way beyond the contact-only chip card and its anti-counterfeiting role at the POS or ATM.  That minimal investment approach is advocated by Visa as a way to get things moving.  A number of merchants and MasterCard want EMV's more costly offline capabilities to be employed, for the increasingly rare instances where offline transactions are required during international travel or the even rarer cases when POS networks go down at major retailers because of a fiber cut or a Sandy or Katrina level event.

The TGV solution requires a dual interface card and a contactless acceptance infrastructure.  But now we've doubled the cost from $1 to $2 per card and $50 to $100 per terminal on the bet that merchants will deploy new terminals with contactless capabilities (fairly safe) and that we can develop the business models to encourage use of these cards for authentication in online banking, e-commerce and more as well as payments (not so safe).

The entire industry will be spending billions on deploying EMV into what is the largest card market with the greatest number of POS terminals and transaction points.  It's an ecosystem build out.  But if we take the cheapest, lowest common denominator track, the ROI potential for that investment could be constrained and it will definitely be delayed.  

Perhaps that choice is what's needed to get the train rolling.  Going down the track a ways will teach us a lot about EMV and its potential while we start to decrease the size of what's become the fattest global payments fraud target.  But there'd better be plenty of connections to the high value system ahead or we'll have spent a lot of money and careers-worth of time to manage a counterfeit card problem that has been, for the most part, under control with today's tools.  The fact that today's tools are losing the battle may in fact be the best argument for getting underway.

Here's to building robust infrastructure and here's a shout-out to all those driving to do so.  

For those who were at the session, Walters' remarks about the urgency and importance of making the right choice around EMV deployment was an inspiring moment.  Here's to more such leadership.

A special shout out to Randy Vanderhoof and his team at the SCA, too.  What was a sleepy, preaching to the choir event five years ago has expanded and improved enormously.  Randy's holding the space for the EMV Migration Forum, too.  It's a big important job.  Thanks, Randy.

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