Applying IT investment decision theory to payment card upgrades

Abstract

The new Europay-MasterCard-Visa (EMV) Chip-and-PIN payment cards are slowly replacing traditional magnetic stripe cards worldwide. Although it makes little economic sense for the individual firm to take on the significant cost required to upgrade hardware and software to convert to the new standard, wide-scale adoption results in positive externalities such as a reduction in payment card fraud that benefit all interested parties. This study investigates the investment decision at the country level and examines the variability of when countries choose to adopt the new standard as a unique application of existing theoretical economic models of IT investments. It finds evidence supporting a relationship between high payment system switching costs and delayed EMV conversion as shown through several separate regression models, where switching cost is represented by the level of payment card utilization.