When Discover Financial Services last week announced its EMV smart card conversion timetable for the United States, it again stoked debate over whether card networks and issuers should embrace the chip-and-PIN or chip-and-signature formats.
Most merchants prefer chip-and-PIN because they believe it has a proven track record for reducing fraud. But now some are saying it ultimately will come down to a “consumer-beware” scenario.
The Minneapolis-based Merchant Advisory Group has expressed its support for chip-and-PIN technology (see story).
But Discover’s March 15 statements has merchants concerned again about chip-and-PIN being overlooked (see story). Discover leaves the technology decision up to merchants instead of establishing a preference, avoiding clear direction about the status of chip-and-PIN in the grand scheme of EMV conversion, Mark Horwedel, CEO of the Minneapolis-based Merchant Advisory Group, tells PaymentsSource.
Visa Inc. put the EMV conversion engine into overdrive last August when announcing its incentives, dates and liability requirements for smart card use in the U.S. (see story). MasterCard Worldwide in January set guidelines that followed Visa’s lead on deadline dates and other aspects, but put chip-and-PIN more at the forefront with a liability shift to the merchant or acquirer, depending on which is responsible for transactions taking place in the least-secure manner (see story).
When the Merchant Advisory Group first read MasterCard’s EMV statement, the association felt it was more merchant-centric than the position of Visa, which had not clearly stated a preference for chip-and-PIN as the main technology, Horwedel says.
“But after looking at the MasterCard information more closely, our conclusion is that it is not much different from Visa,” he says, noting MasterCard is allowing issuers that provide chip-and-signature to retain some charge-back rights, Horwedel notes.
“Where is the relief for the merchant with chip-and-signature if the issuer has charge-back rights?” Horwedel asks. “The merchants are not clear about this and may not fully understand, so MasterCard may need to explain this better.”
MasterCard representatives were not available to comment on the charge-back policy.
Because Discover’s announcement allows merchants to decide which technology works best for them, but remains unclear about how a liability shift may work with EMV conversion, Horwedel believes the issue will become clearer when Discover Bank starts issuing smart cards.
“I think they will [issue chip-and-PIN cards] because Discover has always focused on the merchants more than the other networks have,” he adds.
The chip-and-PIN debate gained some steam from Discover’s announcement mainly because merchants are beginning to realize the networks are not going to promote chip-and-PIN as a consumer benefit, Horwedel suggests.
“The merchant’s return on investment for an EMV conversion does not add up if the technology is not chip-and-PIN,” he suggests.
Brian Riley, senior research director and analyst with Needham, Mass.-based TowerGroup, tells PaymentsSource the industry will now wait to hear what American Express Corp. determines as an EMV route because plenty of confusion remains after other card network announcements.
“We’ve gone through what seems like a 20-year waiting period for EMV, but we can’t seem to get it right the first time [with clear directives],” Riley says.
Yet the confusion created because merchants and issuers have a choice in technology is not surprising, Riley adds.
“When you look at countries around the world using the chip cards, it is all over the board as to where chip-and-PIN or chip-and-signature is used,” he notes. “There is no rhyme or reason, it seems.”
Networks and issuers likely lean toward chip-and-signature because it represents a much faster transaction process when considering Visa transactions of less than $50 and MasterCard transactions of less than $25 don’t require a signature anyway, Riley contends.
Horwedel admits issuer reluctance to push chip-and-PIN exclusively remains a mystery to those in his organization.
“It could be a question of costs because fraud damages are picked up by the merchant with charge-backs on signature transactions, and that would be limited with a PIN transaction,” Horwedel contends. “But why wouldn’t everyone want to embrace what is proven to be the most secure method?”
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