By John Heggestuen From Business Insider

In the U.S., most consumers and merchants will soon need to switch over to the ‘chip card’ standard, otherwise known as EMV.

It’s a technology most recognizable as a chip on payment cards, which is designed to make card transactions much more secure. In Europe and other parts of the world, the chip has been standard on payment cards for years.

BI Intelligence looked at how fraud trended in the U.K. after the implementation of EMV to get a sense of what the trajectory would be in the U.S. While fraud went down over all, card-not-present fraud actually went up initially. (See chart above.) Card-not-present transactions are those most often conducted via online channels.

Why did card-not-present fraud go up?

Criminals who were dissuaded from trying to clone payment cards turned to vulnerabilities in online payment systems. In the U.K. card-not-present fraud volume remained above card-present fraud volume through 2012. That’s especially notable considering how much smaller the online market is compared to in-store sales volume.

In a recent report from BI Intelligence, we took a deep dive into the EMV change-over. We looked at what the transition to EMV will entail, how much it will cost to upgrade, and who the winners and losers will be in the payments and online industries.

Consider:

BI Intelligence estimates the total cost of upgrading U.S. payment terminals and software systems to accept chip cards is going to be around $11 billion in order to reach full penetration. That money will go toward new payment terminals, new cards with the embedded chip, and additional ATM hardware and infrastructure costs.

All things being equal, after all the necessary investments are made, the U.S. card industry probably wouldn’t start to see a net positive return — in the form of eliminated fraud — from implementing the chip standard until the early- to mid-2020s.

The risk is that by the time EMV-triggered savings do come into force, other forms of authentication will be state-of-the-art. There are already alternative technologies for payments security out there that limit exposure of payment information even more than the EMV system.

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In full, the report:

Gives detailed breakdowns of the costs of upgrading hardware, software, ATMs, and reissuing payment cards.

Looks at the key deadlines that payment card networks are using to pressure the industry to make the switch to EMV.

Explores whether the card networks will be successful in getting different players in the payments space to adopt the new standard.

Analyzes how the card networks will benefit from pushing their partners to adopt EMV, including the potential upside for mobile payments adoption.

Includes an interview with a key EMV expert who gives us insights into what the migration will look like, why it’s important to make the change, and the types of businesses that will take the longest to upgrade.

Explains why the rollout of EMV might turn out to be a Pyrrhic victory for many of the players involved, even when the fraud cost reduction is taken into account.

IMAGE: UK Fraud Indicator BII

For more on this story go to: http://www.businessinsider.com/payments-cards-getting-a-technology-upgrade-2014-7#ixzz37voAmtMN

Related story:

Emerging payment technologies will create new winners and losers in the giant credit card industry

By John Heggestuen From Business Insider

The credit and debit card ecosystem is much bigger than MasterCard, American Express, and Visa.

Scores of companies play different roles in the system as intermediaries, most of them as merchant-facing vendors that provide the technology and services that help businesses accept credit cards. Recently, Silicon Valley has decided they also want to compete in this market, and introduced online, mobile, and cloud-based services that compete with those provided by the legacy players.

In a recent report from BI Intelligence, we look at the complicated series of interactions among different legacy players that powers each credit card payment, outlining the six types of companies that play key roles in the credit credit payment chain. We explain what each of these players do, and how much value they add, and explain why two parts of this chain — the hardware providers and merchant service providers (MSPs) — are particularly vulnerable to disruption.

Here are some of our key findings:

The credit card companies themselves aren’t going anywhere for now. Visa and MasterCard in particular will remain an indispensable part of the chain because they don’t actually process payments. They simply provide the rails that the credit card system runs on. Credit card processors like First Data that actually do the work of processing merchants’ credit card transactions on the back-end are also in a strong position.

Two pieces in the chain are particularly vulnerable to disruption: the makers of the actual hardware — basically card readers and registers — that are used to physically accept card payments at stores, and the hundreds of vendors known as merchant service providers, or MSPs, which set businesses up to accept credit cards.

Manufacturers of register systems are vulnerable: Point-of-sale hardware faces an immediate threat from mobile devices. These devices are cheap and easy to implement, they do not require consumers to adopt new behaviors, and they free up retailer space previously devoted to bulky hardware.

In addition, the new payments companies — including PayPal, Leaf, Revel Systems, Square, and others — could shove traditional MSPs aside as they bridge the offline and online worlds. They pair their mobile registers with consumer-side smartphone apps, and often also provide additional merchant services, like software for loyalty programs or for parsing online consumer data. These new companies want to replace the old players that focused mainly on logistics, i.e., helping merchants take credit card payments.

But it’s not all doom and gloom yet for legacy MSPs: they have existing relationships with the majority of merchants who accept credit cards and with banks. They also have established marketing channels and large sales forces. Large MSPs will move to acquire new payments technologies to squelch the disruption threat.

For more on this story go to: http://www.businessinsider.com/new-credit-card-industry-market-competition-2014-5#ixzz37vpkjU3l