Mercator Perspectives

EMV and the Cost of Implementation (or the Cost of Not)

There are certainly a lot of cost concerns on both the issuing side of the payment card space as well as the acceptance side. My colleagues and I here at Mercator Advisory Group have been working on discerning what the hard costs and benefits are for both issuers and merchants, since the quantifiable cost is the most tangible element of the business decisions involved in weighing whether or not to upgrade either terminals or plastics. However, with EMV migration, not all the benefits are quantifiable.

For instance, a merchant that we advised recently asked me for the statistics associated with counterfeit fraud so they could weigh how much potential savings they achieve upgrading terminals. I immediately knew—while he had a good point and a valid question stemming from it—there were several dynamics factoring into the consideration to upgrade that he wasn’t taking into account, and that cannot be taken into account in ANY hard cost/benefit analysis for EMV.

In fact, I’d go so far to say that most of the good reasons to upgrade terminals on the merchant side and plastic cards on the issuing side have nothing to do with the elimination of counterfeit fraud losses. Since I am less a “math guy” and more of “market forces guy” in my analysis of these kinds of questions, many of you probably guessed that I would say this: fraud loss cost reduction is not the reason to migrate to EMV.

We also don’t have the need for offline authorization that precipitated the development and implementation of EMV in France in 1992. Only when we as an industry are able to leverage the chip on our new plastics in some kind of fashion that adds value to basic authentication (though it is certainly a better authentication technique than magstripe), will we be able to make a compelling business case for EMV beyond mandate compliance.

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