U.S. EMV Update: Portfolio Conversions

Navigator Edition: August 2014
By: Casey Merolla

As the October 2015 liability shift deadline quickly approaches, issuers are feeling heightened pressure to migrate card portfolios to EMV. Over the past six months, the industry has reacted to highly-publicized data breaches at major merchants as well as received much needed clarity around debit routing with the recent resolution of the Durbin-related litigation and announcement of cross-licensing agreements among several debit networks for use of a common application identifier (AID).

Given the uncertainty that surrounded debit for much of 2013, many issuers focused almost exclusively on credit portfolio conversion strategies, and are therefore far along with credit-specific plans. Most large credit issuers have completed certification and testing with their processing partners, and many are issuing chip cards as part of the existing re-issuance cycles for credit cards. The recent developments on the debit side have allowed issuers to expand their focus to debit portfolios, and many are pursuing similar strategies to credit. While credit conversions will outpace debit, First Annapolis estimates that by 2017, all credit and debit cards issued will be EMV-compliant (see Figure 1).

Figure 1: Projected U.S. EMV Penetration of Total Cards in Force

Fig-1_-Projected-EMV-Penetration-of-Total-Cards-in-Force_-14Jul9Source: First Annapolis Consulting research and analysis.

The strategy of relying on re-issuance cycles is expected to be the norm for issuers across the industry. Few issuers to date have opted to pursue mass re-issuance, though First Annapolis expects to see a wave of larger FIs mass re-issue card portfolios in late 2014 and early 2015. Private label cards will likely convert at a much slower pace, and be highly merchant dependent. Target, for example, has announced that its RED card will be (and is being) re-issued as EMV, while Neiman Marcus has expressed a willingness to explore EMV, but has yet to make a commitment. Given the limited utility of private label credit cards, the urgency to convert is less immediate and will be driven by merchants’ greater EMV and POS strategies.

Prepaid card conversion will be highly dependent on segment (e.g., general purpose reloadable, government, gift etc.). First Annapolis predicts that temporary cards, particularly gift cards, will not be issued with EMV capabilities due to the cost and short life cycle of the cards. Government, payroll, and employee benefits cards will likely follow a similar conversion trajectory to debit, driven largely by government and consumer concerns around payment security. Lastly, direct deposit-enabled general purpose reloadable cards will likely convert to EMV, though presumably at a slower pace than debit. Issuers and program managers are unlikely to issue temporary cards with EMV capabilities, but will provide the cardholder with an EMV card once the account is personalized and enabled with recurring deposits.

The combination of merchant data breaches and resolution of the Leon/Durbin decision has created significant momentum for the industry’s move to EMV. Most issuers are focused on deploying EMV as quickly as possible, and conversion efforts are in full swing.

For more information, please contact Casey Merolla, Senior Manager,, member of Deposit Access Practice, specializing in Debit and Prepaid.

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