As many as 40 million credit and debit cards were compromised recently when hackers breached security of Target Corporation, TGT. Target customers are changing pin numbers, canceling cards, and using cash. We are thinking about investment opportunities related to this fiasco, the connection between the Target security breach and EMV cards. What fundamental analysis does one need to do to profit when the USA switches to EMV cards? The intrinsic value of stock is its forward looking income stream and if the USA switches over to EMV cards that is a lot of money.
Information on a Debit or Credit Card
The type of magnetic strip credit or debit card used in the USA contains encrypted PINs, customer names, credit and debit card numbers, card expiration dates and the embedded code on the magnetic strip on back of the card. Possession of this information could allow a thief to withdraw money from a bank account, engage in identity theft and generally make the life of the victim miserable. While the type of card used in Europe contains the same information it uses a different technology. The Target security breach and EMV cards are not compatible. That is to say this would probably not have happened if the USA had gone to the EMV card years ago.
EMV stands for Europay, MasterCard and Visa. EMV is a global standard for inter-operation of integrated circuit cards. These are also called IC cards or chip cards. They use a computer chip to hold information instead of a magnetic strip. The data in these cards is substantially more difficult to breach. For example, when Europe adopted this standard credit card fraud fell by nearly forty percent in a year and more than ten percent the next year. From the viewpoint of profitable investing, where is the profit in the Target security breach and EMV cards? What needs to happen to switch the largest economy in the world over to EMC cards and who will profit?
The Cost of Switching to EMV and ATM Manufacturers
By comparison there are more than four hundred thousand ATMs, two million payment card terminals, and six hundred million credit and debit cards in use in the USA. If the system decides to deal effectively with the Target security breach and EMV cards become the norm all of this must change. A likely scenario will be that all new cards will be EMV. Card issuers may be mandated to replace existing cards with EMV on a routine basis. ATMs need to be modified. However, according to Triton Systems, this can be done in the field with a replacement package. A fair estimate is that it would cost financial institutions $8 Billion to make the switch to EMV capable machines and accomplish all other details of a switch to EMV.
Changes Are on the Way
VISA intends to change all cards to EMV. After October 1, 2015 merchants who do not use EMV technology will be individually liable for fraud that could have been prevented with EMV. To make money in stock market investing consider investing in folks who will be involved in the EMV makeover.
Who Wins in the Target Security Breach and EMV Scenario?
Companies that make ATMs, maintain them, and do programming will benefit when the USA makes the shift to EMV cards. Here is a short list of the companies that could prosper:
- Better ATM Services, Inc.
- Burroughs, Inc.
- Diebold, Incorporated
- Elan Financial Services
- NCR Financial Solutions
- Triton Systems