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No chips in the US

To usher payments into a new era, the US does not need "chips" (EMV). Here's why.

Retail fraud level in the UK (EMV country) is 0.013%. Level of retail fraud related to "mag stripe + PIN" in the US is.. 0.013% too! It's not about the "chip", it's about the PIN...

Also, EMV solves only part of the problem as far as fraud is concerned - in the UK, for example, over 80% of card fraud is not "chip"-related... 

So, instead of EMV the US needs to do three things: (1) prohibit the use of signature for payment authentication, (2) introduce mobile-based authentication, for both e-commerce and retail payments, and (3) provide ubiquitous low-cost infrastructure for mobile payments in retail (a hint - it doesn't have to be EMV...)

Positions 1&2 above are "zero Capex", as far as retail is concerned.

As for the last postion, there are 8-12m retail payment terminals in the US - different sources give different stats, but 8-10m makes sense considering that there are 18.7m (EMV) terminals outside the US. At that volume, the cost of a contactless EMV terminal is less than $15. Hence, the ballpark cost of US-wide EMV switch-over, as far as the terminals are concerned, would be around $300m.

(For transactions above the floor limit, PIN pad is also needed, but (a) many US retailers already have it, and (b) volume cost of a PCI-compliant PIN pad is another $15 or less.)

Google, PayPal and ISIS already wasted over $1.5bn trying to make mobile payments work in the US.

The reported annual cost of the US card fraud - in retail alone - is $1.7bn (some estimates say that the real-life level of card fraud is $16bn...)

Wait a minute! $300m (even $1bn) one-off cost in retail VS $1.5bn already wasted and $1.7bn being lost every year... Hm... As Aleksandr the Meerkat would have said, "Interestings!"

Why wouldn't the key stakeholders (EMV itself, top issuers, top acquirers, Google, PayPal and, perhaps, mobile operators) "chip in" to flood the US market with free contactless EMV readers?.. That's just $50m "per head", i.e. per entity which will then be ripping the benefits for years to come...

If that is done, Apple would add NFC to the next iPhone model to ignite the market.

Am I missing something (apart from lack of unified vision even within EMV itself)?..


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19 Mar 2009


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This post is from a series of posts in the group:

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.

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