A credible article in CNN Money describing the enhanced security implemented by EMV somehow spawned two different ill-conceived articles in Bitcoin focused news sites. The first to market with a silly headline was Inside Bitcoins with the eye catching headline “Banks Introduce EMV-chipped Credit Cards To Keep Bitcoin At Bay.” The article was primarily a re-hash of the CNN Money article with this bit of crazy tacked on at the end:
“While the efforts to make credit card payment should be applauded, these new chips are one of the top financial innovations the sector has seen in the past 50 years. Financial institutions are grasping at straws to keep consumers away from other viable alternatives, such as Bitcoin, which are not in control of the banks or governments.
Merchants will have to upgrade their infrastructure at an additional cost to accommodate for these EMV-enabled payments. If they decide to accept Bitcoin as a payment method, however, there is no additional infrastructure to set up. Plus, they will be charged lower payment processing fees, and are protected from Bitcoin price volatility.”
Clearly these experts in bitcoin lack expertise in retail point-of-sale transactions, which is the only place EMV chip cards are used. The statement “there is no additional infrastructure to set up” is simply dead wrong. To accept bitcoin at retail would require significant upgrades to both the POS and to the backend systems that support refunds. But wait, it got worse when NEWSBTC saw the great headline and decided to up the insanity quotient a tad with these two opening paragraphs:
“The banking and financial industries have been doing everything in their power to counter the influence and growth of bitcoin and other digital currencies. These digital currencies with secure and transparent features combined with ease of use have been offering tough competition to traditional banking and financial sector. The competition has grown to such an extent that financial institutions are now considering bitcoin as a threat to their business and they have started finding ways to keep up with the cryptocurrency industry by exploring ways to incorporate blockchain technology into their operations.
Meanwhile, banks are tweaking their existing products to match different aspects of bitcoin. In one such move, banks across the world have started issuing EMV enabled credit cards to enable secure transactions. These ne cards have an EMV chip integrated into them. The EMV chips will contain all the user information embedded into it. With the introduction of EMV based credit cards, the probability of card’s data getting compromised is very low, These cards can now be swiped anywhere without any worries.”
The reason these articles caught my attention is that Mercator’s Emerging Technology Service is responsible for tracking EMV, Tokenization, mobile wallets, Bitcoin, and several other emerging technologies such as biometrics. Mercator studies these areas because we believe these technologies will profoundly change the existing payments infrastructure. We believe Bitcoin and blockchain technology will have a major impact on banks, but in no stretch of the imagination can we perceive EMV as a bank reaction to Bitcoin. In fact, for the most part banks have simply been bemused by the regulatory challenges Bitcoin faces while they study how the blockchain technology might be applied to their infrastructure operated in compliance with existing regulations.
If there are Bitcoin proponents interested in learning the history of EMV and tokenization, the Mercator report “Payment Networks 2.0: The Battle for Tokenization” provides a five page history which clearly identifies the market pressures that drove these technologies and Bitcoin isn’t mentioned once. This shouldn’t be surprising, since EMV has absolutely nothing to do with Bitcoin, it was eCommerce and mCommerce that worried banks. For example, consider these statistics. According to Coindesk, the bitcoin trading volume in 2014 was $23 billion. During this same time period, PayPal reported a total payment volume of $168 billion. Guess which one banks are worried about most.
There are many key issues that Bitcoin aficionados like to ignore when comparing bitcoin to bank cards. Perhaps the most obvious is that a large percentage of cards in market are credit cards. Consumers aren’t spending their own money; they are borrowing money from the bank directly at the POS. But even if we limit our comparison to debit cards, the fact remains that banks offer a range of services most consumers highly value.
Banks protect consumers that have lost or stolen cards. Lose your bitcoin address because you took direct possession of it, or because you trusted a wallet provider that wasn’t trust worthy, and you are out your bitcoin. Lose your debit card and you get a new one in a day or two. Have money stolen from your account and receive a credit 5 days after reporting the incident. So let’s not be blind to the aspects of bitcoin that fail to protect the average consumer from bad actors or even themselves. While libertarians may perceive these as negative attributes the vast majority of people recognize these as positive benefits. Bank cards and bitcoin can and do live side by side, but the reality is that today Bitcoin is perceived as unregulated and unsafe by most consumers and banks have nothing to do with that perception. Bitcoin proponents should become more introspective and determine what the Bitcoin community must do to gain consumer trust. That won’t be an easy problem to fix since Bitcoin requires the user calculate and accept the risk as there are no bitcoin consumer protections.
Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group