The EMV smartcard standard is so commonly combined with a PIN code that most consumers know it simply as "chip-and-PIN." But Visa and MasterCard don't agree on whether PIN use should be a priority when the U.S. adopts the EMV standard.
Merchants have declared a preference for chip-and-PIN as the most effective way to combat fraud as EMV cards replace magnetic-stripe cards. MasterCard agrees with that position, says Carolyn Balfany, MasterCard's senior vice president and group head of U.S. product delivery.
"EMV addresses counterfeit fraud, but the chip-and-PIN addresses lost and stolen [card] fraud," Balfany said during a Feb. 5 media conference call at the 2013 Payments Summit in Salt Lake City hosted by the Smart Card Alliance.
Other countries that operate with chip-and-PIN have seen "significant fraud reduction, up to 80% reduction," Balfany says. In the meantime, the hackers have migrated to the U.S. because of its non-EMV payments system, resulting in a 47% increase in fraud, she adds.
While both MasterCard and Visa have stated support for all card verification methods, Visa continues to recommend chip-and-signature, says Stephanie Ericksen, Visa's head of authentication product integration.
"Signature is the most cost-effective and reduces the time-to-market," Ericksen said during the same conference call. "Our goal is to make cards as inexpensive as possible to manage and maintain, and allow our customers to get to EMV quickly."
Counterfeit and lost-card fraud decreases as issuers improve authorization practices, Ericksen says.
The reduction in fraud through EMV will have other benefits for issuers and acquirers, she adds.
"There will be a reduction in client calls regarding declined authorizations, or alerts that the client is traveling," Ericksen says. "It will cut customer service costs."
In trying to draw support for chip-and-PIN, merchant groups have also made the case that consumers are not as protected against fraud costs as they may believe.
In recent weeks, Visa and MasterCard have separately worked to resolve another issue with EMV migration: the need for a common application identifier for EMV debit transactions.
Visa has offered its technology for the creation of a generic common AID to allow debit transactions to route over multiple networks, while MasterCard has offered to make its Maestro network available for all debit transactions.
Because the U.S. payments industry has waited 10 years to have an EMV implementation schedule, merchants wonder why a system without PIN would even be considered, says Mark Horwedel, CEO of the Merchant Advisory Group.
"Without two-factor authentication we only solve the counterfeiting fraud, which impacts mostly banks, but not the lost and stolen which tends to affect the merchant more," Horwedel said in an interview.
In addition, the industry as a whole is not addressing the card-not-present channel at all, despite the fact fraud will move in that direction and "again disproportionately impact merchants," he adds.