Dongling Your EMV Payments
I came across this article in American Banker the other day and it got me thinking about dongling my payments. Yep, you heard me right. Truth be told, the thought of this blog had crossed my mind once or twice before. In fact, I’ve got a great story to tell about the first time I thought about this topic. Yes, I digress. It occurred a year ago at the April 2012 NACHA Payments Conference (you’ll see why this is ironic in a second), a popular annual payments event which is in fact occurring this week. At NACHA Payments last year, I noticed that the local coffee shop was selling its caffeinated wares to the exhausted conference attendees but was only accepting payments in two forms: (1) via mobile wallet payments on smartphones or (2) using its mobile-reader-attached-to-a-smartphone for the Neanderthals in line who still carry around plastic cards like me and just about everyone I noticed (NOW do you see the irony?!?). After noticing that the line was at a complete standstill for 5 straight minutes, I asked my fellow line-standers what was up and lo and behold, it turned out that their smartphone’s mobile reader for accepting plastic debit/credit cards wasn’t working properly on the conference center’s Wi-Fi signal and not enough people in line were able to pay with mobile wallets! Talk about a first world crisis!
So here’s how I see things … on the one hand we’re seeing fairly widespread adoption of “dongle payments” such as iZettle, Square, and GlobalPay. By one vendor’s metric, Square (easily the leader in this space, most people would agree) stated in September 2012 that it was processing $8 billion payments annually (up from approximately $2 billion in October 2011). On the other hand, while this significant uptick (although still miniscule in relative transactional money movement terms on a national or international scale, of course) continues, we’re also seeing a clear roadmap for EMV adoption in the U.S., with MasterCard, Discover, and Visa (in March 2012), and American Express (in June 2012) – each having announced EMV roadmaps for the US market which aim by 2015 to make most Point-Of Sale devices “EMV-capable” along with all the other relevant liability shifts, etc.
So there’s no surprise that I found myself chatting with a colleague the other day asking about how EMV adoption in the U.S. might intersect with “dongle payments adoption.” If cards are increasingly going EMV, then how come the card-readers-into-tablets/smartphones haven’t caught on to this quite yet? Where’s the focus on the poor (yes, pun intended) old EMV cardholders who want to pay for that $6 cup of coffee or $1.50 used paperback book you’re selling at this weekend’s yard sale in your driveway? I would argue that for now, the lack of EMV capabilities in mobile money readers stems from the fact that EMV adoption remains quite low. For example, a January 2012 report by the Federal Reserve Bank of Atlanta found that the total number of U.S. cardholders issued EMV consumer cards in the approximately 9 months from October 2010 until July 2011 was under 2 million.
However, with the merchant incentives the networks are pushing and the specific roadmaps which they are issuing, I imagine it’s only a matter of time (and also probably a little bit of chicken and egg come to think about it), until real EMV adoption comes to U.S. shores. After all, U.S. citizens make 70 million international trips each year so there’s a market opportunity for U.S. issuers to pursue. Even if we argue that 70 million trips includes (a) kids without cards of their own and (b) repeat travelers, the still-more-modest metric of 35 million (if we were to arbitrarily halve it) would still account for over 10% of the entire U.S. population! In short, I bet that we’re going to see U.S. adoption of EMV grow right around the same time that we’re going to see increased ubiquity in dongling our payments. And that will be one fun intersection to watch. Which one happens first will be fascinating. My guess is that the mobile reader makers will move faster than the issuers will. Stay tuned.