Mercator Perspectives

The First U.S. City to Convert to EMV

At the recent Smart Card Alliance Payments Summit, a common theme regarding the successful introduction of EMV into the United States payments ecosystem quickly became apparent.

Industry leaders, both from the U.S. and from countries that have already adopted smart card payments, all agreed on the importance of a coordinated effort across the entire payments industry. All of these experts made it clear the best way to encourage an efficient conversion to smart card technology is for merchants, issuers, acquirers, processors, networks, and anyone else with a role in the payments system to reach an agreement on all desired outcomes for EMV adoption and to develop an implementation strategy consistent with that agreement.

One of the first major steps in developing this agreed upon strategy is what the EMV Migration Forum (EMF) has termed Phase 1. Effectively, Phase 1 involves expediting the EMV conversion in one U.S. city, revealing many of the potential problems that may be faced when the entire country undergoes conversion. This test phase would involve regular status meetings between representatives from all aspects of the industry, additional meetings with focused discussions on specific issues, and consumer surveys and focus groups, all in the name of developing a coordinated EMV adoption plan across the entire payments industry.

The program could go into effect as early as summer 2013. Although the city for the test has not yet been determined, a list of criteria is already underway. Three of the most important criteria are:
  • City size. In order to get the test into effect as quickly as possible, the EMF is looking for a relatively small city. As stated at the 2013 Payments Summit, the ideal city will have a population between 100,000 (about the size of Green Bay, WI) and 300,000 (about the size of Cincinnati, OH). 
  • A large amount of international traffic, particularly from countries that have already adopted EMV. This will allow testing for all potential issues that could arise when accepting internationally issued EMV cards. 
  • A city neither at the top nor the bottom of average household income. The city should represent as many areas within the U.S. as possible, 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 its proximity to Canada, Buffalo seems to be particularly fitting.

This test would have a number of advantages. While the most important of which would be the ability to develop a coordinated implementation strategy, not far behind would be a clear cut beginning of a commitment to EMV, especially among issuers. While the network road maps have milestones in place for when acquirers and merchants should aim to be EMV ready, issuance of EMV cards is not specifically addressed by any of the milestones. While many major issuers have already begun experimenting with the issuance of chip cards (especially for card holders likely to travel abroad, such as corporate card holders), these financial institutions flooding a specific city with EMV cards would signify a definitive beginning of large scale chip card issuance.

However, there are also significant problems to be addressed with this plan for a test city. While the ability to develop a strong national strategy provides motivation for acquirers, issuers, processors, and merchants with a nationwide presence, any party whose business resides entirely within the market of this test city has no such incentive. The best example of this is small merchants. While Tier 1 merchants are able to extrapolate a broad strategy from the experience of the test city, any merchant whose only location(s) is within the test city has no need for a national strategy. Why would a small merchant go through the trouble of expediting their EMV conversion if they are receiving nothing in return?

The vast majority of merchants would fall under this category of being too small to need a national strategy. If these merchants aren’t given a reason to participate in the test, the success of the program will be limited at best. While this concept of a test city is a great first step for the U.S. EMV conversion, it will not be fully effective unless small merchants are actively brought on board.

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