At the recent Smart Card Alliance PaymentsSummit, a common theme regarding the successful introduction of EMVinto the United States payments ecosystem quickly becameapparent.
Industry leaders, both from the U.S. and from countries that havealready adopted smart card payments, all agreed on the importanceof a coordinated effort across the entire payments industry. All ofthese experts made it clear the best way to encourage an efficientconversion to smart card technology is for merchants, issuers,acquirers, processors, networks, and anyone else with a role in thepayments system to reach an agreement on all desired outcomes forEMV adoption and to develop an implementation strategy consistentwith that agreement.
One of the first major steps in developing this agreed uponstrategy is what the EMV Migration Forum (EMF) has termed Phase 1.Effectively, Phase 1 involves expediting the EMV conversion in oneU.S. city, revealing many of the potential problems that may befaced when the entire country undergoes conversion. This test phasewould involve regular status meetings between representatives fromall aspects of the industry, additional meetings with focuseddiscussions on specific issues, and consumer surveys and focusgroups, all in the name of developing a coordinated EMV adoptionplan across the entire payments industry.
The program could go into effect as early as summer 2013. Althoughthe city for the test has not yet been determined, a list ofcriteria is already underway. Three of the most important criteriaare:
- Citysize. In order to get the test into effect as quickly as possible,the EMF is looking for a relatively small city. As stated at the2013 Payments Summit, the ideal city will have a population between100,000 (about the size of Green Bay, WI) and 300,000 (about thesize of Cincinnati, OH).
- Alarge amount of international traffic, particularly from countriesthat have already adopted EMV. This will allow testing for allpotential issues that could arise when accepting internationallyissued EMV cards.
- Acity neither at the top nor the bottom of average household income.The city should represent as many areas within the U.S. aspossible, not just the richest or the poorest ones.
Although a list of prospective cities has yet to be announced,given these criteria, a few potential locations could be Orlando,Fla., Salt Lake City, Providence, or Buffalo, New York. Given itsproximity to Canada, Buffalo seems to be particularlyfitting.
This test would have a number of advantages. While the mostimportant of which would be the ability to develop a coordinatedimplementation strategy, not far behind would be a clear cutbeginning of a commitment to EMV, especially among issuers. Whilethe network road maps have milestones in place for when acquirersand merchants should aim to be EMV ready, issuance of EMV cards isnot specifically addressed by any of the milestones. While manymajor issuers have already begun experimenting with the issuance ofchip cards (especially for card holders likely to travel abroad,such as corporate card holders), these financial institutionsflooding a specific city with EMV cards would signify a definitivebeginning of large scale chip card issuance.
However, there are also significant problems to be addressed withthis plan for a test city. While the ability to develop a strongnational strategy provides motivation for acquirers, issuers,processors, and merchants with a nationwide presence, any partywhose business resides entirely within the market of this test cityhas no such incentive. The best example of this is small merchants.While Tier 1 merchants are able to extrapolate a broad strategyfrom the experience of the test city, any merchant whose onlylocation(s) is within the test city has no need for a nationalstrategy. Why would a small merchant go through the trouble ofexpediting their EMV conversion if they are receiving nothing inreturn?
The vast majority of merchants would fall under this category ofbeing too small to need a national strategy. If these merchantsaren’t given a reason to participate in the test, the success ofthe program will be limited at best. While this concept of a testcity is a great first step for the U.S. EMV conversion, it will notbe fully effective unless small merchants are actively brought onboard.