Many indicators from financial institutions, consumers and merchants suggest the United States payments industry is ready to adopt EMV chip-and-PIN technology, a new report suggests.
Several top U.S. issuers plan to issue EMV cards within the next year to select cardholders, who most likely will be international travelers hoping to avoid problems making purchases and ATM withdrawals outside of the U.S., Aris Jerahian, vice president of client relations for The Members Group, writes in a white paper dated Dec. 15. In fact, cardholders traveling overseas spend on average six times more than nontraveling consumers and generate nearly 4% of all credit card spending, Jerahian notes.
The Members Group provides consulting; credit, debit, ATM, prepaid and online reporting; and other customized services to U.S.-based financial institutions.
An EMV conversion in the U.S. has been widely debated among U.S. merchants. Wal-Mart Stores Inc. earlier this year voiced the need for a domestic chip-and-PIN program as a strong barrier against point-of-sale payment fraud (see story).
Financial institutions also are starting to see the benefits. In May, for example, United Nations Federal Credit Union announced plans to offer consumers an EMV credit card (see story).
Additionally, Travelex Currency Services Inc. began issuing chip-and-PIN prepaid cards at its 180 U.S. retail sites and plans to distribute even more cards to about 2,000 retail banking partners, including U.S. Bancorp and HSBC, early next year (see story).
EMV cards are helping to enhance security and prevent fraud, Jerahian writes. Canada in 2009 reported a more than 20% decline in overall credit card fraud from the previous year, Jerahian notes.
EMV technology aids in preventing fraud because the merchant is able to verify the person attempting to use the card is authorized before the transaction takes place, according to Jerahian. Transactions both in-person and online initiated with magnetic stripe cards are based on the standing of the account, not whether the cardholders is the authorized user, he adds.
Moreover, the technology prevents fraudsters from cloning payment cards because they need to know the PIN associated with the card. During a transaction, the point-of-sale terminal communicates directly with the card’s chip, which not only verifies the PIN but the transaction details without any information leaving the terminal, Jerahian writes.
Aside from an increase in security and fraud prevention, financial institutions also should realize the advantages to launching an EMV card program, such as the ability to boost cardholder loyalty and to retain and attract higher-spending cardholders, and to grow card portfolios, Jerahian says in the white paper.
Indeed, while much of the industry remains hesitant regarding EMV adoption, several driving factors point to an inevitable adoption of chip-and-PIN technology to support EMV within the next few years, Jerahian contends.
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