Published in American Banker, Aug 4, 2010
Wednesday, August 04, 2010
With Wal-Mart recently throwing its weight behind the need for a domestic chip and PIN program and United Nations Federal Credit Union declaring itself the first U.S. EMV card issuer, EMV-based chip cards have recently made stateside headlines. EMV is clearly gaining traction in the U.S., and it wouldn't be surprising if banks soon followed suit in issuing EMV payment cards.
Still, while EMV proponents push its benefits — fraud deterrence and global interoperability — critics contend that EMV will have a short life span if adopted in the U.S. as the rest of the world readies itself to move on to new specifications.
Whether or not EMV takes off in the U.S., the country is ready for it — the technology infrastructure that supports EMV is mostly available here today. And this underlying technology will be able to evolve with smart card innovations beyond EMV.
Although EMV-based cards are grabbing the spotlight now, they are just one example of secure, chip-enabled payment tokens, and other form-factor innovations lay just around the corner.
Without a doubt, EMV adoption in the U.S. would be complex and costly, but the pain of this transition is eased by the fact that its smart card-based infrastructure can be leveraged to support future chip-enabled payment forms, which are inevitable. This infrastructure includes transaction processing, risk management and card or token management solutions that can readily support chip technology.
For example, on the issuing side, solutions exist today that combine workflow management with data preparation and life-cycle management. These solutions handle the issuance process for any type of smart chip-based token by loading the customer data and application data on to the chip and then tracking its status throughout its useful life. On the authorization side, solutions available today can interrogate the data coming in on chip-based payment transactions and deliver a new set of instructions through a script to the token in real time if required.
Although EMV payment cards gained worldwide adoption primarily because of their promise to combat card-present fraud globally and because of industry mandates, these chip-based cards offer the flexibility to store multiple applications, enabling banks to deliver greater value from these cards as well as improve service. For example, smart cards could offer applications such as customer-centric, coupon-based loyalty programs that take advantage of stored personal shopping-related data, including purchase history, brand preferences, phone numbers and dietary information.
Given this multiapplication flexibility, the potential for smart chip-based payment forms is boundless, and we can only begin to predict what the evolution of smart chip cards or tokens in the U.S. will look like. Contactless and mobile payments are key innovations on the immediate horizon.
Contactless, or near-field communication, technologies are currently used in high-transaction, small-value payment niche markets such as mass transit and quick-serve restaurants.
Contactless technology, however, has the potential to grow exponentially with the advent of NFC-enabled phones waiting in the wings. For instance, Nokia recently announced that it will integrate NFC into some of its Symbian smartphones next year. In the meantime, interim solutions such as NFC stickers, SIM cards and microSD cards are available for cell phones to make mobile payments.
In the next three to five years, we will likely see a proliferation of smart chip, user-friendly payment token form factors. As members of this generation of tech-savvy, convenience-oriented high-school-age and college-age consumers get out into the world, they will demand products that work in conjunction with everyday gadgets such as mobile devices.
Unlike EMV's original introduction in Europe and around the world that was driven by a desire to reduce card-present fraud collaboratively across the industry, contactless and mobile payments are more marketing-led, so they represent a competitive differentiator for banks. At the same time, they still offer the security and fraud deterrence that are mandatory in our increasingly digital world.
The more savvy U.S. financial institutions will recognize that innovations on the payment front will dovetail with the usability and convenience that our on-the-go culture is starting to demand and expect. By making the investment in a smart card infrastructure now, these financial institutions will be able to support the rollout of EMV in the U.S. if needed in the short term.
More crucially, however, they will be able to support the next smart-chip-based iteration of EMV, which will help ensure their future survival and profitability.
Lynn Holland is a vice president and general manager of product management at ACI Worldwide, a payments software vendor, and Jim Schlegel is senior product manager.