Panic at the Checkout: Will EMV Friction Boost Mobile Payments?
Mobile payment adoption in the US has been underwhelming. Will problems using EMV terminals drive consumers to ApplePay and others? The payments industry has been talking about “f…
Mobile payment adoption in the US has been underwhelming. Will problems using EMV terminals drive consumers to ApplePay and others?
The payments industry has been talking about “frictionless payments” for a long time. Starbucks has been the gold standard, racking up 16 million users and 21% of all of the company’s transactions. Meanwhile, one in five US consumers (20%) with an iPhone that supports Apple Pay has tried the mobile payment service, while 14% of those with a Samsung Galaxy S5 or S6 have tried Samsung Pay or Android Pay. Those numbers are pretty good, but nothing like the 141 million-plus EMV cards that Visa now has in circulation in the US, alone.
Here’s my theory: Mobile payments are predicted to triple in the US in 2016, but the huge growth won’t be due to anything like payments systems being embedded on new mobile phones, upgraded point of sale systems or loyalty programs. People will rush to mobile payments because they’re uncomfortable with using their new EMV cards.
There have been a few interesting articles on EMV confusion, like this one in the Chicago Tribune, and this one by ace investigative journalist Brian Krebs. I’ve had a few cringe-worthy experiences, too, including at the grocery store this past weekend. Despite colorful wall banners proclaiming “Use your chip!” and instructional, professionally produced signage, I still removed my card from the EMV reader too soon because of confusing messages on the point of sale (POS) terminal. I even fought my instinct to do a fast dip; I had left the card in there. But once the terminal said “Continue checking out,” I quickly pulled out the card … and then had to re-insert and start over.
After what seemed like an eternity, I was able to leave, clutching a bag of groceries and my bruised ego. The cashier had no idea who I was or what I did for a living, but since I knew that, I felt pretty silly at having messed it up.
In search of a frictionless check-out experience
There is no shortage of examples like this. Amusingly, I’ve become a bit of an industry clearinghouse for tales of payment woe. Over the holidays, a FICO colleague in South Carolina, Adam Barrett, shared his experiences:
"My first EMV cards started appearing in the mail months ago and local merchant terminals are gradually converting to accept them. It looked like the US was going to be ready to take a real bite out of counterfeit fraud over the holiday shopping season.
"So why is it that after making countless purchases for my friends and loved ones, my EMV debit card was only used once as a chip (not swiped)? Oddly, the one merchant who used the chip terminal was local and still uses a hand-held calculator to determine sales tax. None of the national chains I made purchases at were using EMV functionality yet. One had gotten so tired of telling customers that the chip function wasn’t on yet, they opted to put masking tape on the reader."
Back on the west coast, my local pharmacy decided to kick it old school with their EMV adoption program. They used this tried-and-true method to instruct customers on how to complete their purchase.
Mixed progress on EMV rollout
Americans who have spent time in Europe or, more recently, in Canada might find these friction-filled payment vignettes amusing, if not annoying. For the majority of American consumers (even those who are frequent international travelers), these episodes are downright confusing, and perfectly summarize the mixed progress of EMV rollout in the US.
Will panic at the checkout translate into a big boost in mobile payment adoption? Only time will tell. Get your play-by-play commentary on consumers’ pursuit of frictionless payments by following me on Twitter @fraudbird
Popular Posts
Average U.S. FICO® Score at 716, Indicating Improvement in Consumer Credit Behaviors Despite Pandemic
The FICO Score is a broad-based, independent standard measure of credit risk
Read more
The GSE Data Is Public. Here's What It Shows About Credit Score Modernization.
Independent Milliman analysis of GSE historical data confirms what anyone can now verify directly: FICO® Score 10T is the most predictive score.
Read more
FICO® Score High Achievers: Is Age the Only Factor?
<p>FICO’s latest research on <a href="http://www.fico.com/en/blogs/risk-compliance/us-credit-quality-rising-the-beat-goes-on/" target="_blank">national FICO® Score distribution</a> shows that US credit quality continues to trend upwards, with an increasing number of consumers scoring in the highest scores ranges. Given that, we decided it was time to refresh our study on “<a href="http://www.fico.com/en/blogs/risk-compliance/infographic-what-does-a-high-credit-scorer-look-like/" target="_blank">FICO® Score high achievers</a>,” where we examine the credit behavioural profiles of consumers with higher credit scores.</p> <p>As expected, our latest study showed that older people generally have higher scores, as has been the case in our <a href="http://www.fico.com/en/blogs/risk-compliance/age-before-beauty-credit-worthiness-before-youth/" target="_blank">past research</a>. This is largely because they have trade lines that have been open longer, which leads to higher scores (assuming the trade lines are in good standing and all other things equal). The most credit savvy among you will remember that length of credit history accounts for roughly 15% of the overall <a href="http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx" target="_blank">FICO® Score calculation</a>.</p> <p>But for younger consumers, it isn’t too helpful to say, “just wait until you are 50 years old, and that will fix things!” Thus, I decided to dive deeper with our analysis, including looking at the credit behavioural characteristics of younger consumers with high FICO® Scores.</p> <p>In this analysis, I looked at credit characteristics for the two highest score bands, 750-799 and 800-850, which have about 16% and 23% of the population, respectively. I further broke this down by looking at the characteristics of the youngest 15% in each group, which occurs at age 29 for the 750-799 group and 43 for the 800-850. We used FICO<strong>®</strong> Score 9 for our analysis, and examined typical variables of the categories that go into the make-up of the score.</p> <p><a href="http://www.fico.com/en/blogs/wp-content/uploads/2016/10/FICO-Score-High-Achiever-table.png"><img class="alignnone size-full wp-image-29367" src="http://www.fico.com/en/blogs/wp-content/uploads/2016/10/FICO-Score-High-Achiever-table.png" alt="fico-score-high-achiever-table" width="715" height="747" /></a></p> <p>Since there’s a lot to dissect in this chart, I’ll highlight a few findings that struck me: <ul> <li><strong>Credit history.</strong> Higher scores are undoubtedly associated with a longer time on file. What’s striking is the higher average time on file for the 800+ group, both overall and for revolving accounts (the most common trade line). Clearly, it helps to start credit use early in life – but that’s not the sole determining factor for high scoring. The younger cohorts in both the 800+ and 750-799 groups have time on file medians significantly less than their older counterparts.</li> <li><strong>New credit.</strong> High credit scorers do, in fact, pursue new credit. We see little variation in months since last trade line opening and last inquiry among all groups observed.</li> <li><strong>Pay on time.</strong> As you might expect, the further in the past the delinquency, the higher the score – and that’s <u>if</u> a delinquency ever happened. 95% of the 800+ people and 72% of the 750-799 group have never been delinquent, which is a striking contrast to the 57% for the total population. The percentages for the younger groups are even higher, especially so for the 750-799ers. Collection items are also scarce for these high scorers. While 23% of the national population have collection items greater than $99, the figures are only 0.5% for the 800+ group and 3% for the 750-799 group. It is clear that, in conjunction with starting a credit file early, paying on time is a key trait of the FICO® Score high achiever.</li> <li><strong>Balance and utilization.</strong> Finally, we look at how credit is being used, focusing on revolving product use. (Since most people only have one mortgage or one auto loan, variation in instalment product figures is minimal and driven by payment history, which is near perfect for high scorers, as we’ve seen.) FICO® Score high achievers tend to have more open revolving accounts. While the % active trades and utilization are generally lower, by no means do high scorers avoid the use of credit products. What drives the difference here is the amount of <u>available</u> revolving credit utilized. The 800+ group is roughly 1/4 of the national median, both in total and on their highest utilized card; they also have lower balances and more cards<em>. </em>The 750-799 group is more active and higher utilized, but still only at 2/3 of the national figures. The young 750-799 group compensate with lower revolving balances and, as a result, lower utilization, which is in line with what we see for the 800+ group.</li> <li><strong>Benchmarks.</strong> I’d like to point out that while this study provides good benchmarks of the typical credit traits of the FICO® Score high achiever, individual credit profiles will vary widely. And keep in mind that when we sort groups of consumers as a whole by different behaviours, some results may look superficially odd. For example, the 800+ band has a longer median average open account time (128 months) than average revolving months on file (140 months).</li> </ul> So, what do we conclude? A huge takeaway is that high scorers don’t have too much in the way of serious delinquencies and negative public record data.</p> <p>In most respects, the young 800+ people are like their peer group. They really only differ markedly in their shorter credit history and higher non-mortgage balance, both of which are a function of life stage. Our results show that you don’t have to be a credit product hermit; these high scorers have more credit cards. The takeaway is to start credit activity early and maintain well-managed and moderate usage.</p> <p>In many ways, the young 750-799 people are more interesting because their age profile is much younger. Their credit characteristics differ more from their peer group, particularly in terms of length of credit history. They compensate by having almost pristine credit records and lower balances.</p> <p>Ultimately, 39% of US consumers are FICO® Score high achievers, which they accomplish by following common-sense credit practices. It ain’t rocket science!</p>
Read moreTake the next step
Connect with FICO for answers to all your product and solution questions. Interested in becoming a business partner? Contact us to learn more. We look forward to hearing from you.