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Expert opinion

Payment Trends in the US - The EMV Migration and the future of mobile payments

Wednesday 24 January 2018 | 10:06 AM CET

Dr Windsor Holden, Head of Forecasting & Consultancy with Juniper Research, highlights the latest payment trends in the US.

This editorial was first published in our Online Payments and Ecommerce Market Guide launched on 1 November 2017. The guide features several important thought leadership editorials from ecommerce and payments industry professionals, which makes it a top-reference source for anyone involved in the payments ecosystem.

The EMV migration

Compared to other developed markets, the evolution of offline payments in the US has lagged behind, with EMV only mandated from October 2015. If, after that point, merchants had not introduced processing systems to facilitate chip-based payments, then liability for fraud would pass from the card providers to them.

Even with the onset of EMV, banks were reluctant to move to chip-and-pin, apparently concerned that their customers would be unable to remember a 4-digit PIN. Hence, US customers now use chip and signature instead of the more secure alternative.

The transition to EMV has reportedly provoked a degree of resentment amongst US consumers and merchants, due, in part, to longer transaction processing periods (7-10 seconds vs 2-3 seconds for traditional swipe card). Hence, if POS (point of sale) payments can be processed more quickly through a contactless NFC (Near Field Communication) transaction (the speed for offline Apple Pay transactions is typically 2-3 seconds) then merchants can benefit from greater throughput at POS.

US Market Snapshot, 2017

While this would also be true of a contactless card transaction, the belated migration to EMV has meant that there is a paucity of contactless cards in the US market (an earlier iteration of contactless based on mag stripe technology was not successful).

Meanwhile, despite the EMV mandate, only 19% of US CP (card present) transactions were EMV in 2016, compared with nearly 98% in Western Europe and 91% across Canada, Latin America and the Caribbean. Indeed, by March 2017, just 44% of US stores that accept Visa had adopted chip-enabled technology, meaning that more than 2.5 million US retailers had still not introduced EMV-capable terminals.

On the merchant side, the implementation has been delayed due to several reasons. One is that, apart from the cost of new terminals, merchants need to install software to integrate the terminals with their current system. Secondly, merchants need to be (re)certified by banks and card networks to confirm interoperability between their systems and the payments infrastructure.

This has led many smaller merchants or merchants with historically low fraud levels to postpone the EMV migration for as long as possible, regardless of the fact that liability has now switched to them.

Card or smartphone for in-store payments?

The delay in EMV migration in the US went hand-in-hand with a delay in contactless implementation. While a small number of contactless magnetic stripe cards and terminals were deployed a decade or so ago, marketing of the option was poor and adoption negligible.

This then obliged players in the smartphone NFC space to seed the market, a task which proved to be beyond the unfortunately-named Isis consortium of mobile operators which introduced a short-lived service in late 2013.

However, with the launch of Apple Pay, the US contactless space finally began to gain some traction, with many retailers upgrading their terminals to accept contactless payments. According to Head of Apple Pay Jennifer Bailey, the proportion of US retailers supporting the service risen from 4% at the end of 2014 to 35% in late 2016, amounting to 4 million physical locations.

Juniper believes that as contactless usage gains traction and consumers / merchants recognise the speed and convenience it offers, then, as in European markets, there will be a further and significant increase in availability at POS.

PayPal: Apple’s main rival at POS?

Arguably, the primary challenger for Apple Wallet, Android Pay and Samsung Pay in the US mobile wallet wars is PayPal, the established international leader in online payments. One of its primary objectives has been to reduce the level of friction in online checkout. With this is mind, the company introduced One Touch in March 2015, allowing consumers to pay for goods across multiple mobile apps and websites with a single log in.

In recent years, PayPal has diversified from its core online payment services, exploring a number of alternative offerings both directly and through subsidiary companies. In the money transfer space, it has moved into both international transfers (via Xoom) and social P2P (person-to-person) payments (via Venmo). But perhaps its most intriguing move has been its US foray into contactless payments, using a wallet based on HCE (host card emulation) technology. '

During the H2 of 2016, the company finalised deals with both Visa and Mastercard, enabling PayPal users to set a credit or debit card as a default payment method for in-store payments, giving them access to POS terminals accepting Visa and Mastercard payments.

Visibility and ubiquity are key

For all payment providers, visibility and ubiquity are key. If a payment card or method can become the default payment method for all online and offline transactions, then so much the better. Hence, for wallet providers, it is essentially to offer payments at POS and for remote payments, a strategy which Apple is assiduously pursuing.

Similarly, the more wallets card providers partner with, the greater their opportunity in a US marketplace which continues to transition from cash to card and from physical to digital.

About Windsor Holden:

Dr Windsor Holden is Head of Forecasting & Consultancy with Juniper Research and author of the recently published POS & mPOS Terminals: Vendor Strategies, Positioning & Market Forecasts 2017-2022.

 

 

About Juniper Research:

Juniper Research is acknowledged as the leading analyst house in the digital commerce and fintech sector, delivering pioneering research into payments, banking and financial services for more than a decade.

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