Blog

EMV Arrives in the US

Sep 28, 2011

In the US 32% of consumers reported card fraud in the past five years, according to a recent industry survey. That was up from 27% in 2009. These numbers will only grow as American banks are relying on decades old technology that makes cards highly vulnerable to being skimmed and counterfeited. The familiar magnetic stripe on the back of millions of credit and debit cards first came into use in the 1970s and stores all the details of the card holder’s account in a simple unencrypted format.

One of the most important aspects of a payment system from the consumer’s perspective is trust.

Visa’s recent announcement that it is going to push EMV adoption in the US is welcome news.

American banks have been long time hold outs against chip technology citing a lack of business case to undertake the costly migration from its much loved on-line mag stripe world. While the rest of the world got on with the job of migrating to the superior and more secure technology the US banks kept their heads firmly in the sand.

Although the banks have been slow to respond at least one major US retailer, Walmart, has had the vision to start the process of upgrading its POS infrastructure for chip acceptance. The challenge in any chip migration is always on the terminal side as this is a far more costly upgrade than issuing a new type of card. It’s encouraging therefore to see a retailer of Walmart’s stature taking the lead.

Interestingly, in recent times there have been a few US banks, including JPMorganChase, Citibank and Wells Fargo issuing chip cards to their upscale and travelling customers. This was triggered by acceptance problems abroad where traveling Americans were finding merchants refusing to accept non chip cards.

The business case for chip is long proven across Europe where fraud levels have fallen dramatically following the mass introduction of chip and PIN. Russia has been used by Visa over the years as a testing ground for new technology, attracted by the country’s history of innovation and lack of legacy infrastructure that could act as a hindrance to progress. Russian banks are now active in migrating the country’s payment infrastructure to EMV.

The shift in liability for fraudulent transactions proposed by Visa is a sensible motivator and rewards those institutions investing in the newer technology. This is a model employed by many countries as part of the migration process. The liability shift results in the fraud cost always going to the weakest link, in other words a mag strip card in a chip terminal results in any fraud loss going to the issuer.

Visa’s announcement includes a mandate for the support of contact, contactless and mobile NFC technology. While contact chip technology has been the norm worldwide to date, contactless and NFC technology holds the promise of extending customer convenience beyond the traditional card and point of sale to the mobile phone.

Now we wait for MasterCard to follow.

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