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EMV loss may be mobile wallet gain

Jan 19, 2016 / Consumer Banking / Payments / Technology

The October 1 deadline came and went for merchants to accept new chips cards – also known as EMV cards – and the payments world remains much the same.

Of the eight million U.S. merchants that accept debit and credit cards, only about 300,000, or less than 4%, are equipped to take chip cards today. Most small businesses have not upgraded their terminals – and many are not even aware of the fraud liability shift if they do not adopt the new technology. Even large merchants have been slow to outfit new point-of-sale terminals or activate their chip acceptance functionality, with the exception of companies such as Target and Home Depot that experienced well-publicized data breaches.

Although the new chip cards offer consumers and businesses improved security over the old magnetic strip cards, the transition to EMV has been far from smooth. According to a Harbortouch survey, less than a quarter of all consumers have actually used one. People who have tried the new chip cards find the process slow, confusing and even frustrating, with failed swipes and not understanding that they need to insert or “dip” it correctly into the reader slot.

With the new cards, users also need to wait for a confirmation signal after inserting the card in the reader when their automatic reflex is to immediately pull it out. Compounding matters further, payment confirmation can vary by payment terminal or by a store’s payment procedure. Some terminals beep when a transaction is complete; others flash a light or a message on a screen; and in still others, a store clerk must verbally confirm payment completion.

In fact, using the EMV cards generates a slower payments process than the familiar magnetic stripe cards. This has led many consumers to switch back to mag stripe and others to skip the card experience and turn to mobile wallet alternatives, such as Apple or Android Pay. Is there a silver lining there?


NFC Option

Consider that the EMV shift has been favorable in other ways for mobile payments. The checkout readers being rolled out to take the new cards are also outfitted to support near field communication (NFC) technology that allows smartphones to “tap” a card reader to make a payment. Ultimately tap-and-pay may turn out to be a much more attractive option for consumers than dip-and-pay with EMV cards. It’s faster and equally secure, if not more so.

Another factor that is likely to increase consumer adoption of mobile wallets is the ubiquity of NFC technology in newer smartphones. While only a handful of handsets are NFC-capable at the moment, in time the technology will become a standard feature on everyone’s phone as consumers upgrade their mobile phones.

Currently, there is much media attention on new mobile initiatives such as Apple Pay, Android Pay, Samsung Pay and, soon to come, Walmart Pay, Chase Pay and Microsoft Pay. As consumer awareness of mobile payments increases, inevitably more people will be inclined to give it a try. When loyalty and rewards features are thrown into the mix, mobile wallets are likely to become more attractive.

There are other adoption pains associated with EMV cards that may also act in favor of mobile wallets. Retailers and banks continue to wrangle over the virtues of chip-and-pin versus chip-and-signature. While the rest of the world introduced PINs with chip cards, U.S. issuers stuck largely with signatures as a second form of identification – which has led to law enforcement push back. Recently, attorney generals of eight states urged the mandate of PINs with the new chip-based payment cards. Even the FBI got in on the act by suggesting that all EMV credit cards use PINs, a bit of advice the agency later retracted. But banks, having already invested millions of dollars in issuing new chip cards, are reluctant to spend millions more to force the use of PINs they see as having little impact on overall card fraud.

Shoppers are unlikely to be happy with PINs either. Adding a PIN is one extra step that slows down lines for customers accustomed to a speedy checkout. Remembering a PIN is also inconvenient and forgotten PINs could mean lost sales – a reason that may prompt retailers to encourage mobile payments use as well. Meanwhile, PINs may actually become obsolete in coming years as more banks focus on biometric security authentication such as fingerprints, vein patterns, voice recognition and photo selfies associated with mobile transactions.

So, while the adoption of mobile wallets remains slow today, there are some indications that events are converging for the perfect storm to encourage the use of mobile payments.

Ms. Quibria is managing director and founder of Boston-based Q Insights, a payments research and consulting company. She can be reached at [email protected].