U.S. Commercial Cards: EMV Issuance on the Rise

Navigator Editions: Commercial Payments: Special Edition Navigator, April 2014
By: Dan O’Neill

Recent announcements from U.S. commercial charge card issuers have drawn renewed attention to the changing EMV landscape in commercial cards.

By way of background, the major networks (American Express, Discover, MasterCard, and Visa) are driving migration to EMV chip-enabled technology in part through an announced fraud liability shift for most U.S. point of sale environments (excluding fuel dispensers) scheduled for October 2015. After that date, the liability for fraudulent non-EMV transactions will shift to whichever party is the missing link in the EMV chain; that is, to the issuer who provides a non-chip card or to the merchant whose terminal lacks EMV support. This deadline has prompted many U.S. issuers to begin issuing chip-enabled cards to certain cardholders (see January 2014 Navigator, “U.S. EMV in 2013, and a Look Ahead”).

Figure 1: Impact on Fraud with Switch to EMV Cards
(% distribution of organizations, n=318)

Fig-1_-Impact-on-Fraud-with-Switch-to-EMV-CardsSource: 2014 Association for Financial Professionals Payments Fraud and Control Survey of 318 financial professionals.

One of the factors driving the liability shift is that EMV cards are perceived as a more secure alternative to the magnetic stripe-only card typical in the U.S. Added security is appealing not only for the consumer cards we use on a daily basis, but also for commercial cards. According to the 2014 AFP Payments Fraud and Control Survey of 318 financial professionals, 43% of organizations who had experienced actual or attempted payments fraud in 2013 cited cards as a source of that fraud. At the same time, Figure 1 demonstrates that 92% of respondents believe a switch to EMV cards would result in a reduction in fraud.

The liability shift may be the impetus behind many issuers’ EMV strategies, but chip cards can also be a way to differentiate a product and drive more spend, especially internationally. Major commercial card issuers were generally early adopters of EMV in the U.S., and some have been experimenting with chip cards for several years now. In comparison to consumers, commercial cardholders are more likely to be frequent international travelers for whom chip technology will be especially valuable due to its ubiquity abroad. For this reason, commercial cards have been a natural place for U.S. issuers to proactively test EMV products on a smaller scale.

Figure 2: EMV Adoption Among Top U.S. Commercial Card Issuers
(by combined corporate + purchasing card spend volume)

Fig-2_-EMV-Adoption-Among-Top-USource: The Nilson Report, American Express annual report, issuer websites, press releases, and First Annapolis web research as of April 2014.

As shown in Figure 2, nine of the top 10 U.S. commercial issuers have adopted chip cards or publicly announced plans to make them available to at least a portion of their cardholders. Often this is done selectively; either upon client request or as needed for executives and frequent international travelers. However Bank of America’s1 and Wells Fargo’s2 recent announcements that all newly issued U.S. commercial cards would be EMV-enabled indicates that distribution may no longer be niche.

Figure 3: Potential Benefits by Cardholder Verification Method

Fig-3_-Potential-Benefits-by-Cardholder-Verification-Method_v31 PIN capabilities on an EMV chip card can be online only – or – online and offline (i.e., card terminal does not need to perform any external communications to authorize the card presented).
Source: First Annapolis Consulting observations.

Outside the top 10, EMV adoption has increased, but is still not universal. Among issuers 11-20, fewer than half have adopted or announced commercial EMV capabilities. However, chip cards may become more popular among regional issuers as they try to keep products competitive with the large national players and protect themselves from the looming liability shift.

As noted in Figure 2, U.S. EMV commercial card issuers are split between two cardholder verification methods, Chip & Signature and Chip & PIN. To date, the networks have varied in their treatment of these two approaches from a fraud perspective. On one side, the need for a PIN is downplayed, and the chip itself (regardless of verification method) is what qualifies a transaction for the liability shift. On the other side, some stakeholders have referenced an EMV security hierarchy that would be imposed on transactions with different verification methods, where PIN verification would be classified as more secure than signature alone.3 Liability factor aside, a significant advantage of the Chip & PIN approach is its utility at unmanned POS locations abroad, such as vending machines, parking meters, or ticket kiosks. In such environments where a PIN is required, Chip & Signature cards may not function.

Regardless of the verification method chosen, impending network deadlines and competitive pressures have made it increasingly important for U.S. commercial card issuers to develop and articulate EMV plans while continuing to monitor developments in the market.

1 April 7, 2014 Bank of America press release “BofA Merrill Further Extends Chip and PIN Technology to Corporate and Commercial Card Portfolio.”
2 May 1, 2014 Wells Fargo press release “Wells Fargo Commercial Cards Are Europe-Bound: E.M.V.-enabled cards now available globally.”
3 January 2013 Smart Card Alliance Payments Council White Paper “Card Payments Roadmap in the United States: How Will EMV Impact the Future Payments Infrastructure?”

For more information, please contact Dan O’Neill, Associate, specializing in Commercial Payments, daniel.oneill@firstannapolis.com.

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