The U.S. should follow the model that worked for the U.K. in its "seamless, coordinated" transition to the EMV-chip card standard seven years ago, Auriemma Consulting Group states in a new report.
Payment cards that use EMV chips are more secure than magnetic-stripe cards, but to become widely adopted EMV cards require new hardware at the point of sale and an industrywide consensus on some of the underlying technology.
In the U.K., the Association for Payment Clearing Services (APACS) led the EMV effort, mobilizing all payments stakeholders, Auriemma says. In addition, issuers and merchants widely agreed that EMV offline chip-and-PIN was the most secure technology available.
"APACS didn't really have authority to establish mandates, but it was a payments body that knew all of the issuers and had no trouble getting them to agree on standards," says report author Stuart Sykes, Auriemma's operations director for Europe, the Middle East and Africa. The report was based on discussions with key stakeholders in the U.K. and the U.S., as well as Auriemma's involvement in various EMV discussions.
The EMV Migration Forum, which held its first meeting in September of 2012, has to take on a similar role in the U.S. by creating consensus and establishing an EMV timeline that helps the industry meet the card networks' liability shift timelines, Sykes says. The EMV Migration Forum, organized by the Smart Card Alliance, brought together more than 100 industry executives.
Payments companies in the U.S. view the migration forum as the "de facto meeting place" to work together on EMV issues, says Randy Vanderhoof, director of the EMV Migration Forum and executive director of the Smart Card Alliance.
The EMV Migration Forum has no decision-making authority, but the card brands, merchants, acquirers, issuers and processors view it as an independent body to "use as a way to solidify their EMV action plans," Vanderhoof says.
Sykes says APACS brought in the British Retail Consortium to accelerate EMV plans. The BRC, which represented the country's largest merchants, got retailers quickly on board with chip-and-PIN.
"In the U.K., the issuers and merchants agreed on PIN because they wanted to go for standards in which they wouldn't have every transaction online," Sykes adds.
The EMV standard enables chip-and-PIN payments to obtain authorization without having the terminal go online to connect to an issuer for each transaction. Merchants generally view offline transactions as more secure and less expensive, Sykes says.
The U.S. migration to EMV is taking place under timelines set by the four major card networks. Under these timelines, most merchants must adopt EMV technology at the point of sale by October 2015 to avoid a fraud liability shift.
However, even though the timelines are nearly identical, the card networks disagree on the best way to implement EMV security.
In the U.S., MasterCard has supported chip-and-PIN, while Visa has encouraged chip-and-signature as a less expensive, faster way for merchants to convert to EMV. Discover is allowing issuers and merchants to decide, depending on market and geographic factors.
"Countries using EMV chip-and-PIN can't understand why Visa is not fully supporting the technology," Sykes says.
The U.S. is likely going to remain divided on the PIN-vs.-signature debate, with the market ultimately deciding which approach will prevail, Vanderhoof says.
"Chip-and-PIN reduces lost and stolen card fraud, but it introduces customer service challenges for issuers and merchants alike," Vanderhoof says.
Those who support chip-and-signature say consumers complete those transactions faster, he adds. In addition, they say signature is an overall easier process than obtaining PIN pads and helping customers change their PINs, Vanderhoof adds.
The U.K. began discussions about EMV conversion around the year 2000, and began converting its payment cards in 2004. By the end of 2006, the conversion "was pretty much complete," Sykes says.
"It was a slow integration from the standpoint of educating the consumers and the merchants," Sykes says. "But every mag-stripe card that was expiring over a two-year period was being replaced with a chip-and-PIN card," he adds.
About 75% of U.K. consumers were using chip-and-PIN cards before the liability shift dates took hold in 2006, Sykes says.
The U.S. also needs an EMV marketing campaign, similar to the U.K.'s successful "safety in numbers" campaign that promoted chip-and-PIN, Sykes says.
In addition to promoting security, the industry as a whole should embrace EMV because of its adaptability, the report says. "Chip technology is continuously evolving and there have been many developments in the U.K. market since the 2004 launch," Sykes says.
An EMV chip can link to a SIM card in a mobile phone handset, and EMV can be the basis for secure offline contactless and mobile payments, the report says.
In addition, EMV technology supports remote chip authorization, offline and unattended terminals, and payment cards with multiple applications.
These technologies tended to be "bolted on" to the U.K. EMV infrastructure in a "sub-optimal manner," Sykes says. "In the U.S. there is a great opportunity to embed them in the new card payments landscape from the outset," he adds.