Merrill Halpern received an “unexpected benefit” when traveling recently in Europe without an EMV smart card in his wallet. He got a free cup of coffee from a coffee shop employee who felt sorry for him because she couldn’t initiate the transaction on her terminal with just Halpern’s signature.
Most Americans facing a similar situation find it frustrating and embarrassing when they get singled out as being “uninformed” if they don’t carry an EMV chip-and-PIN card when traveling, says Halpern, assistant vice president of card services for the United Nations Federal Credit Union.
But card-data security and fraud prevention represent far more compelling reasons than being embarrassed at a coffee shop for issuers, merchants and consumers in the U.S. to embrace EMV technology, Halpern and two other participants in a PaymentsSource-sponsored Web seminar told attendees March 6.
The webinar, titled “End of the Magstripe? The State of EMV Smartcards in the U.S,” examined the highs and lows, and pros and cons, of a payments industry migration to EMV smart cards in the next few years.
Mark Horwedel, CEO of the Merchant Advisory Group, and Rodman K. Reef, industry consultant and retired chairman and CEO of Citishare Corp., joined Halpern in the discussion. Jeffrey Green, PaymentsSource editorial director, moderated the discussion.
Since Visa Inc. first outlined its timetable for EMV migration with a terminal conversion deadline established for April 2013 (see story), the Merchant Advisory Group consistently has called for chip-and-PIN technology instead of chip-and-signature as the appropriate standard, Horwedel noted during the webinar.
“Chip-and-PIN is the best way to reduce fraud, so why would you go through the expense to convert point-of-sale equipment to accept EMV without getting the improved security with chip-and-PIN?” Horwedel asked.
In addition, Horwedel suggested PINs be required as part of the conversion, unless the merchant is willing to take the risk of not supporting that technology. Part of the Visa conversion timetable in the U.S. calls for a liability shift to the party not supporting EMV technology by October 2015, whether it is the issuer or merchant.
EMV adoption has been embraced around the world, with 81% of cards in Europe carrying the smart chips and 94% of terminals able to accept the technology, Reef noted.
While the United Kingdom enjoyed fraud reduction of 41% from the first half of 2007 to the first half of 2011, the U.S. payments industry continued to believe it had stronger fraud-prevention tools already in place and lower telecommunication expense for transmitting payment information, Reef added.
“But during 2010, that environment changed because fraud began increasing in the U.S., and U.S. cardholders with mag-stripe cards were being turned away at non-staffed and staffed EMV terminals throughout Europe,” Reef said.
With MasterCard Worldwide following Visa’s lead in establishing EMV conversion timetables with similar deadlines, the U.S. payments industry was fully engaged in discussing what it would take to make a smooth transition, Reef suggested.
“Going forward, we have to know what American Express and Discover are planning to do, and we need to understand the impact on prepaid cards,” Reef said. “It’s been estimated that EMV cards will cost two to three times as much as a mag-stripe card.”
Halpern’s credit union in May 2010 was the first to issue EMV cards in the U.S., offering the Visa Elite card mostly to United Nations employees who were traveling around the world to avoid that embarrassment of being turned away at a payment terminal in Europe (see story). With the credit union breaking ground for EMV in the U.S., other banks began to follow suit in the spring of 2011(see story).
Banks planning to issue EMV cards have plenty of steps to take in what amounts to a conversion to a much more complicated payment method, Halpern said.
“You really have to secure the support of your processor and make sure they understand EMV,” Halpern said. “Not all processors are up to speed on the technology.”
Bank executives have to understand what data the bank has control over and what data it wants control over, Reef said. “It’s very different and far more complicated than the data on the mag-stripe card,” he adds.
Bank executives also should estimate the extra cost of issuing EMV cards, Reef said. In addition, they must determine what kind of impact an EMV migration might have on the cardholder database and the bank’s customer-service operations.
Halpern suggested issuers provide customer service 24 hours a day, seven days a week during the conversion period.
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