For card manufacturers like CPI Card Group, the U.S. transition to EMV continues to be a top priority. But broader trends like the rise of e-commerce and wearables also are shaping a business that goes well beyond plastic.
CPI Card Group went public last fall shortly after the EMV liability shift in the U.S. With the largest network of high-security manufacturing facilities in North America, the company has been keeping busy as its issuer clients seek advice and line up to move away from the magnetic stripe. As with any transition in the complex U.S. financial system, the shift has had its share of bumps—largely on the merchant side where certification delays have held up terminal activation. The good news for CPI is that this is not the company’s first EMV rodeo. With experience in Europe and Canada, CPI has a wealth of knowledge to share with clients, particularly those in prepaid that are last to migrate. Paybefore spoke with CEO Steve Montross to discuss where we are with EMV in the U.S., renewed demand for dual-interface cards, and how CPI is helping clients internationally embrace virtual, mobile and whatever comes next.
Paybefore: What can you tell us about the U.S. EMV migration and where prepaid issuers are in terms of the transition?
Steve Montross: We’ve definitely seen a pickup on EMV with the prepaid issuers, particularly with the issuers of government benefits and payroll cards, but the pace is much slower, in general, than with debit and credit. Many prepaid issuers have taken a wait-and-see attitude. As the acceptance network expands, we’re starting to see more prepaid issuers delving into what EMV means for them and what they need to do.
A lot of our recent EMV activity on prepaid actually has been in Canada where issuers are moving to dual-interface cards. Canada began its EMV migration eight years ago and prepaid issuers there are concerned about fraud on their magstripe cards. While we expect prepaid issuers to focus on EMV for reloadable segments and have seen that in the U.S.—health care, GPR, government benefits and payroll—Canadian issuers are switching non-reloadable gift cards to EMV as well. Even though the cards are more expensive to produce, the enhanced security of an EMV card and the consumer perception that the EMV prepaid card is like their bankcards and is more secure outweigh the additional costs.
Paybefore: Tell me more about the demand for dual-interface—contact and contactless—EMV cards. What’s driving it?
|“The biggest driver overall for dual-interface is the convenience factor. . I think we’ll see more interest in dual-interface in the U.S. due to the improved consumer experience from tap-and-go contactless card payments facilitated by an expanded acceptance network as merchants upgrade their terminals for U.S. EMV migration, and as additional use cases—such as more cities going contactless for their transit systems—build.”|
SM: The dual-interface cards have additional technology—an antenna that’s built into that card to enable contactless transactions. Although that extra technology makes the cards more expensive, issuers are showing more interest in dual-interface cards, especially in markets like Canada, Australia and the U.K., where contactless transaction volume has risen dramatically. For example, the London transit system moving to contactless has really moved the U.K. market rapidly to contactless. Issuers want to provide that payment option to their cardholders, given the added convenience of “tap and go” and the widespread network in place to accept contactless payments.
There definitely are use cases and interest in dual-interface cards in the U.S., but the volumes are much more modest for a couple of reasons. First, we don’t have the acceptance infrastructure in place right now. Estimates are that contactless acceptance is around 10 percent or in the high teens of all U.S. retail terminals. That’s changing as we transition to EMV and the new terminals all have contactless functionality built into them. Next, it’s a matter of programming them to accept NFC payments.
The biggest driver overall for dual-interface is the convenience factor. I think we’ll see more interest in dual-interface in the U.S. due to the improved consumer experience from “tap and go” contactless card payments facilitated by an expanded acceptance network as merchants upgrade their terminals for U.S. EMV migration, and as additional use cases—such as more cities going contactless for their transit systems—build.
Paybefore: This is not CPI’s first experience with a market shift to EMV. What’s most important when you’re talking clients through the process?
SM: One of the things we’ve really emphasized and continue to emphasize is the need for preparation. This is not like ordering magstripe cards. Moving to EMV is definitely more time-consuming and complicated, and you need longer lead times to get everything done.
Another thing we emphasize is how important education is for the issuer and its cardholders. First, it’s about using our EMV expertise to help our clients understand the choices they need to make in terms of the chip card profile, data preparation and key management. We provide the services packaged together to make it as easy as possible.
Next, it’s about making sure the client is prepared to educate customer service reps and call centers and the cardholders themselves, so from the beginning cardholders understand how to use their new chip cards. Or, if they’re confused, they can get a quick answer from customer service.
Paybefore: Let’s shift gears from EMV and talk about the other hot payments topics—digital and mobile.
SM: We group it all under digital, so I’ll talk about that first and then I’ll talk specifically about mobile.
For virtual cards, we offer a Web-based software called MYCA that enables cardholders to upload images and customize cards and the messages sent with them. There are several opportunities for virtual gift cards to help issuers drive revenue—from incentives to promoting instant gift cards to their existing customers. Virtual open-loop cards have more appeal than they used to because redemption is as simple in-store as it is online.
With cpiMobile we provide issuers with a hosted secure digital issuance platform and patented on-device software to manage secure digital credentials. These credentials can be issued to any mobile application and used for barcode or NFC mobile payments at brick-and-mortar merchants. Our solution isn’t geared to be a standalone wallet like Apple Pay but to enable our customers who are the issuers to provide their own mobile wallets and mobile payment provisioning to their customers.
Issuers with a strong presence in urban areas are particularly interested in adding mobile capabilities to their apps. As I mentioned before, with public transportation agencies in cities such as Chicago, Philadelphia, Washington and New York, accepting or planning to accept contactless payments, issuers see transit payments as a way to drive usage of all contactless forms of payment—cards and mobile.
Paybefore: What growth are you seeing in digital/mobile?
SM: Overall digital is still a small part of our business, but we’re seeing good growth and a high level of interest. As such, we’re continuing to invest in those digital services. It’s an important part of the total value proposition we’re bringing to financial payments.
Paybefore: We’re still seeing slow consumer adoption on mobile wallets and some experts suggest wearable payments will surpass smartphone payments. What are your thoughts and do your credentialing capabilities extend to any NFC-enabled device?
SM: We would agree. We are seeing very slow consumer adoption of mobile wallets and mobile payments. We’re seeing interest around wearables and already have seen some wearables out in the marketplace, like the contactless bracelets for rides and hotel rooms at Disney, and the Apple Watch, which is tethered back to the smartphone. In the case of the bracelet or Fitbit, issuers have shown a strong interest because they’re looking for ways to provide convenience for their cardholders across form factors.
If there’s a form factor out there, we want to be in a position to provide those payment credentials to our financial institution clients.
- Q&A with Diane Jackson, CPI Card Group
- CPI Card Group Joins the FIDO Alliance, Advocates for Worldwide Authentication Standards
- CPI Card Group and Worldpay Go Public