Industry Views: Card Manufacturers Talk EMV (June 2013)
Although the network EMV liability shift is about two years out, card manufacturers already are consulting with their U.S. issuing clients to help them make decisions now about how they will approach the transition to EMV. First and foremost is the decision on when to begin, then which cards in their portfolio should have priority. They also have to decide whether or not to opt for dual-interface cards (contactless and contact) and, perhaps most importantly, figure out how much all of this will cost.
Paybefore reached out to several card manufacturers to discuss these issues and what they’re recommending to clients as they approach one of the largest card overhauls yet.
While our experts believe bank card issuers in general are taking it slow, particularly those in prepaid where card life tends to be shorter, they point out that the transition can take 18 months or more. Waiting until the last minute might help issuers take advantage of lower costs overall, but they may face capacity issues as the demand for EMV increases. (For more on EMV, see our special section in the Fall issue of Pay Magazine.)
| Q. When will most U.S. issuers begin converting mainstream cardholders (not just frequent overseas travelers) to EMV? What about prepaid issuers? |
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—Diane Jackson, Director of Business Development & Strategic Marketing, CPI Card Group |
| We don’t expect to see wholesale changes that will affect average consumers until after the liability shift in October 2015. As most of us in the marketplace know, this liability shift means that the party, either the issuer or merchant, that does not support EMV assumes liability for counterfeit card transactions. What we may see is issuers beginning this process with reissues prior to current card expiration, if they feel the merchant infrastructure is largely in place prior to the shift.
—Scott Bennett, Chief Technology Officer, Integrated Printing Solutions |
| The large U.S. issuers really don’t have any incentive to move their entire portfolios of credit and debit products over to EMV until the October 2015 mandated liability shift. In the meantime, portions will be rolled out to facilitate a smooth transition. As cards expire or are redesigned, the issuers will take advantage of natural cycles to introduce EMV rather than forcing it all at once.
I could see, in certain instances, some value for affinity or co-branded programs to reissue some portfolios with EMV, based upon being first to market or user demographics, such as those who travel internationally. On the prepaid side, the EMV conversion will depend on the market segment. Because of the short life span of many prepaid cards, I would imagine a slower conversion to EMV than traditional credit and debit products. —Christopher Smoczynski, President, Perfect Plastic Printing |
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—Render Dahiya, President and CEO, Arroweye Solutions |
| The real answer is “TBD” as it’s simply not clear whether prepaid card issuers will see a business case to migrate to EMV any time soon. The answer hinges on the POS or acceptance side. If, by the October 2015 liability shift time, most U.S. merchants are accepting EMV card transactions and culturally we become accustomed to seeing and using EMV at the POS, then prepaid will need to take action and migrate to EMV. As long as mag stripe cards are accepted, this will remain a question for prepaid (gift and GPR). The only other wild card might be
multi-application/multifunction cards, where some prepaid issuers may use the chip technology to enhance cardholder and/or the card acceptance experience—think EBT/government payments or health care ID/payment as an example. This could help drive certain prepaid segments to EMV sooner. —Garfield Smith, Vice President of Marketing, Oberthur Technologies |
We already are beginning to see many U.S. issuers converting their cardholder portfolios to EMV. Deploying EMV takes time. It’s usually a 12- to 18-month project for the first cards and requires constant attention afterward for anticipating new technologies and preparing a new product launch. For specific prepaid products, such as transit and currency cards, smart technologies may offer advantages, including wider acceptance. Issuers just need to remember that in terms of production time, EMV requires a longer process for the milling and embedding of a chip into a card.
Arroweye is receiving more and more inquiries about EMV from credit and debit issuers. Most are in the fact-finding stage, while others are building time lines to test small portfolios. I believe we’ll see EMV momentum build as we get later into 2013 and 2014. Lately, we’ve noted that more issuers are taking a second look at costs versus returns. It’s extremely expensive to transition to EMV, and I see issuers running pro formas to understand the costs from the liability shift, if they don’t make the switch on time versus immediately transitioning to EMV. On the prepaid side, we haven’t received many domestic inquiries. I would expect GPR programs to be the first prepaid adopters, but even they will need to evaluate the costs versus returns.| Q. Will most U.S. issuers take a dual contact/contactless approach? |
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We’ve led more than 200 EMV projects worldwide and our expertise serves as a resource to our customers. However, we remain neutral on which path(s) the client should adopt. We actively assist the client through providing A) a full range of EMV payment solutions to meet clients’ needs, including contact, contactless and dual-interface payment cards, and B) a fully integrated EMV migration solution and management program known as EMV-in-a-Box. The EMV-in-a-Box program includes on-site consultation, EMV training, project management and technical support. This migration plan enables EMV cards to be issued within 12 weeks from project initiation. —Garfield Smith. Vice President of Marketing, Oberthur Technologies |
| At present, many issuers are evaluating their business and customer needs. For initial trials, we see a shift toward contact EMV, but as the migration gains pace, we expect to see growth in dual-interface cards as more issuers understand the potential added value it will bring to them and to their customers. A good example is the inclusion of contactless transit payment, which could be a significant benefit to consider. We don’t recommend a specific product but listen to our clients’ needs and provide information to help them understand the different choices. We also work together to determine what their needs or opportunities might be in the future as new technologies, such as mobile, come into play.
—Diane Jackson, Director of Business Development & Strategic Marketing, CPI Card Group |
| For the initial phases of the U.S. EMV rollout, I predict issuers will take a low-cost approach and choose contact solutions. For the sheer volume of cards that need to be brought to market in the U.S., contact EMV should accomplish the compliance objective issuers are faced with. As POS terminals are replaced, they will be equipped to accept all form factors. So, why not issue contact
EMV? But the end user needs to be considered. For instance, will the cards be used as a general everyday credit or debit product, or are they being issued to a specific audience that would utilize contactless transit daily? —Christopher Smoczynski, President, Perfect Plastic Printing |
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There’s a lot of uncertainty related to NFC, specifically related to speed of adoption in the marketplace and convenience for consumers, so we’re seeing more issuers start with a contact-only solution. Adding contactless capabilities adds to card manufacturing costs, and many issuers want to focus on their implementation of EMV first and minimize initial investments. For most issuers, this is the best route into the payments transition, unless they have specific use cases where the end customer requires a contactless solution. —Render Dahiya, President and CEO, Arroweye Solutions |
While NFC-enabled devices will drive the growth of contactless readers and enhance the opportunities for dual-interface cards, most U.S. issuers will provide their cardholders with contact-only cards for simplicity and reduced cost.| Q. What do issuers need to be thinking about as they consider EMV? |
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Generally, issuers need to consider the pace of the migration of the technology as well as the current U.S. migration timelines to spread the costs at the very least. —Scott Bennett, Chief Technology Officer, Integrated Printing Solutions |
| The cost of inventory in the vault—which includes the cost of card manufacturing, storage and spoilage—will be one of card issuers’ greatest concerns. The cost of cards is going to rise exponentially in an EMV world. Forecasting and investing in large card inventories will become even riskier and inventory spoilage likely will become an industry P&L line item. New on-demand card production solutions will help minimize costs by moving away from traditional, inventory-centric solutions. Because EMV cards will be more costly to produce on a per-card basis, by producing cards only when needed, issuers will eliminate their inventory risk and costs of spoilage, and continue to offer targeted products for their clients.
—Render Dahiya, President and CEO, Arroweye Solutions |
| For best success, issuers should take a look at when they want to implement an EMV program and work backward with their card manufacturer, association and processor from that date. First, issuers need to decide on their market and potential customer needs. They may want to load proprietary applications (i.e., loyalty/ rewards or transit), which will make a difference in the type of card (dual-interface or contact) and the memory size of the chip they select.
Naturally, adding functionality will cost more, so it’s important that issuers are able to evaluate the potential ROI. This is one of the key decisions an issuer will need to make. But issuers also should consider what will happen over the next few years in terms of innovation in the payments market. It’s all about making a measured decision the first time around. Moving to EMV also gives issuers the opportunity to review their card designs and, perhaps, give their current card programs a full-body makeover. Payment cards are pocket-sized billboards and can make a lasting impression with current and potential customers. As in any road map, take a strategic approach to achieve success. The biggest piece of the puzzle to remember is to plan ahead, allowing plenty of time to make these decisions. —Diane Jackson, Director of Business Development & Strategic Marketing, CPI Card Group |
| Prepaid or any payment card issuer can consider a minimalist approach to EMV feature/functionality that might allow for some cost saving in the card itself, but the reality is that chip card costs will carry a reasonable premium over standard mag stripe cards. Prepaid issuers should be discussing this with folks like Oberthur that have experience with EMV and have developed their own EMV platforms (operating systems) and applications, so platforms can be chosen or uniquely developed to help lower cost or increase card value to the issuer.
—Garfield Smith, Vice President of Marketing, Oberthur Technologies |
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There are several considerations for issuers including:
—Christopher Smoczynski, President, Perfect Plastic Printing
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Preplanning will be essential. We believe card costs will go down as we get closer to the 2015 liability shift as more suppliers and fulfillment service providers enter the market. However, we also expect a mad rush for cards as we approach the liability shift, and there isn’t enough production capacity today to handle the number of cards that need to be issued. So, while there may be some benefit in waiting for prices to drop, there also will be capacity limitations in manufacturing and fulfillment services.
