The Movement Toward Chip-Based Credit Cards
Educational initiatives on the U.S. transition to secure chip-based credit card payment systems was one of the top priorities for 2013 to come out of the 6th annual Smart Card Alliance Payments Summit, held recently in Salt Lake City, Utah.
Education on chip-based card payments was also a major priority for the Smart Card Alliance Payments Council in 2012, when all of the major U.S. payment brands announced roadmaps to the European model in which financial institutions replaced using electronic strips on credit cards with a microchip technology called EMV.
EMV stands for EuroPay, MasterCard and Visa, the three companies that have driven the switch to microchip-enabled credit and debit cards in Europe and the United Kingdom. European banks no longer use magnetic strips, a technology that is a half-century old. Instead, microchips embedded in the cards communicate with the ATM to identify customers.
Already implemented in more than 80 countries, EMV reduces counterfeit card fraud, promotes payments interoperability, and paves the way for mobile payments and secure e-commerce. The Payments Council’s efforts have focused around ensuring that merchants, issuers, acquirers/processors, government regulators, consumers and payment service providers have all of the educational resources they need to successfully migrate to this new way to pay.
Last year, the Payments Council launched a website, EMV Connection.com, that provides up-to-date information on efforts to bring the technology to the United States, along with tutorials and educational materials.
“The Payments Council has been at the forefront of this very exciting time in the U.S. payments industry. As we move to a new payments infrastructure that enables EMV and NFC mobile payments, we will strive to make the Payments Council the go-to resource for guidance and educational materials to ensure a seamless migration,” said Jack Jania, new co-chair of the Payments Council.
The Payments Council has been instrumental in educating industry stakeholders on the value that EMV brings to payments, according to Oliver Manahan, MasterCard Worldwide and new co-chair of the Payments Council.
“The Payments Council will continue to work with all stakeholders–including merchants, acquirers, issuers, processors and consumers–to help identify the steps necessary to fully realize the potential of this technology, not only with card payments but with mobile and e-commerce as well,” Manahan said.
Each time an EMV card is swiped, it produces a “unique transaction identifier,” a security code for that particular transaction. Unlike magnetic strip system in the United States, if someone steals an account number of an EMV card, they can’t use it because they need the security code the chip produces.
Though U.S. banks are great at catching fraud after the fact by tracking card usage, the rising cost of ATM theft is driving American banks toward updating to microchips. Aite Group, a consultant for the financial services industry, estimates the average amount skimmed per ATM is now around $50,000.
Some U.S. banks are launching pilot programs using EMV-updated systems. Wells Fargo has issued EMV-enabled cards (also bearing magnetic strips) to 15,000 of their customers so they can use their cards overseas.
Researchers, trade groups and banks agree, acknowledging that implementing EMV in the United States will be difficult since it requires coordination between banks and merchants, who have had hostile relationships in recent years. In addition, it can be costly.
But security experts say sticking with magnetic strips carries costs as well because it is preventable and uses outdated technology.