Emerging technologies are having a major impact on electronic business today. The mainstream adoption of the Europay / MasterCard / Visa, or EMV standard is a prime example. EMV is a global interoperational standard for integrated circuit or “chip” credit cards. The necessary technology to support this standard is poised to elevate the level of competition in the payment technology vendor sphere over the coming 24 months.
Origin of the EMV Standard
EMV was first rolled out in the United Kingdom in May 1997. Jointly owned by American Express Co., JCB International Credit Card Co., MasterCard, and Visa, the standard has achieved its goal of world-wide adoption over the past 14 years, with the lone exception of the United States. Now, however, EMV is poised to shake up the competitive game in a major way.
The EMV cards have embedded microprocessors that achieve a much higher level of security. Retailers in the U.S., however, have not wanted to use their budget money on new payment systems, and conversely, the credit card vendors haven’t wanted to adopt the chip cards until the merchants were on board. The resulting stalemate has proven particularly annoying for Americans traveling in Europe.
Americans Traveling Abroad Face Difficulties with Older Cards
The older magnetic stripe credit cards are particularly prone to fail for travelers in unattended payment situations like ticket kiosks in train stations. For modern business travelers accustomed to swiping a plastic card over carrying physical money, the refusal of American credit card companies to adopt a standard the rest of the world agrees to has seemed unnecessarily obdurate.
Visa Takes Steps to Propel EMV Adoption
In response, in the summer of 2010, Visa rolled out a series of initiatives to spur U.S. acceptance of the EMV standard. This effort was augmented both by demands from stakeholders for a world-wide payment system with true interoperability, and by the complaints from consumers frustrated by their attempts to use magnetic stripe cards abroad.
Among other stipulations, Visa’s new requirements call for U.S. acquirer processors and subprocessors to support merchant acceptance of chip transactions by 2014. Estimates suggest that 8-10 million credit card readers will need to be changed out as EMV becomes the new standard. One thing that has made U.S. acceptance of EMV more appealing to wary retailers, is the mass appeal of smartphones. Systems that allow payment via cell phone also use EMV chips.
Visa is offering retailers financial incentives to voluntarily upgrade their payment systems, and the initial machines will be transitional in nature, accepting both chip and magnetic stripe cards. The estimated time required for a complete acceptance of the EMV standard in the U.S. is five to six years. Currently American banks provide chip cards only for their most affluence customers who frequently travel abroad, but EMV will increasingly become the norm for all card holders as the switch-over progresses.