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Is there an EMV chip credit card in your future?

by Peter Andrew

If you're not a world traveler, and let's face it, some of us can only afford armchair adventures these days, you may only be dimly aware of EMV, the technology behind "chip and PIN," which is widely used to process debit and credit card transactions outside the U.S. But it's looking increasingly likely that EMV is soon going to be introduced here too, so what might that mean to American cardholders, merchants and credit card companies?

What is EMV?

The abbreviation comes from the three founding companies, Europay--which was acquired by MasterCard in 2002--MasterCard itself and Visa. An EMV credit card looks exactly like any other credit card except for the small chip (also known as an integrated circuit card or microprocessor chip) that's embedded within it.

The purpose of the chip is to make it much harder for a criminal to clone a card. In just about every overseas territory where it's used, the introduction of EMV has been accompanied by the virtual elimination of signatures as a means of authorizing payments, and their replacement by the use of four-digit personal identification numbers (PINs). So in most of the world, EMV and "chip and PIN" are effectively synonymous.

Magnetic strip is a target for fraud

It's very simple for someone dishonest to buy a cheap and widely available electronic device that reads all the details contained on the magnetic strip on the back of your current cards. Using that information, fraudsters can create a cloned card that should work in any of the merchant terminals and ATMs currently in the U.S.

With an EMV card--in theory, at least--cloning becomes close to impossible because of a smart piece of chip-enabled technology called "dynamic authentication." Of course, nobody is suggesting that EMV is going to eliminate credit card fraud entirely. Indeed, a year or two after it was introduced in the UK, Cambridge University published a report questioning some of the claims made for its superior security. However, APACS, the trade body of the British payments industry at that time, responded: "Chip and PIN was never going to eradicate fraud, but our cards are certainly much safer because of it. Decreasing card fraud figures prove this."

EMV credit cards accepted worldwide

Many already know that Chip and PIN usage is is nearly universal in western Europe. You might, however, be surprised by just how far it's spread elsewhere. EMVCo, which is owned jointly by American Express, JCB, MasterCard and Visa, published a "Guide to EMV" in May, which revealed the number of chip-and-PIN cards issued in various territories:

  1. Europe: 673 million
  2. Asia Pacific: 337 million
  3. Canada, Latin America and the Caribbean: 208 million
  4. Africa and the Middle East: 23 million

Given that the technology has been around in some of those regions for more than 15 years, you might think that such widespread adoption suggests that it's proven itself effective.

Will U.S. adopt EMV?

Nobody has categorically stated that EMV is going to be introduced in the United States for domestic transactions. However, there are signs that the industry is swiftly moving in that direction. Just this year:

  1. EMVCo has released that Guide to EMV along with a sales presentation. These seem to be targeted at credit card companies, merchants and so on, and it's hard to see their purpose if it's not to push for the technology's introduction in America.
  2. Visa announced on August 9 "plans to accelerate the migration to EMV contact and contactless chip technology in the United States." A press release said: "By encouraging investments [largely by merchants] in EMV contact and contactless chip technology, we will speed up the adoption of mobile payments as well as improve international interoperability and security."
  3. On August 30, a group of veterans from the U.S. payments industry unveiled its founding of an "EMV Training Academy that supports the U.S. and Canadian banking and payment industries [sic] migration to more secure, effective and convenient EMV chip and pin technologies."
  4. Many American banks have begun issuing EMV-chipped travel credit cards to those of their customers who regularly spend time abroad. So clearly the technology is now on their radar and within their manufacturing capabilities.

Chip and PIN, or just EMV?

Assuming that EMV is introduced in America, it is, in theory, up to individual credit card companies whether they switch entirely to chip and PIN or continue to allow customers to authorize transactions using a signature. The Guide to EMV states:

During an EMV transaction, the chip is capable of processing information and actually determines many of the rules for the payment. The terminal helps enforce the rules set by the issuer on the chip. These rules can include enforcing services such as offline data authentication, verifying the cardholder identity via PIN or signature [this writer's emphasis], online authorisation and so on. It is up to the issuing bank to define which of these services is required for the current transaction, via the rules placed on the chip.

However, using the PIN with the chip is near universal pretty much wherever EMV has been introduced. And, in the writer's admittedly limited experience, whenever foreign subsidiaries of U.S. credit card companies have embraced EMV they have always gone down the PIN route. For example, when American Express recently launched chipped cards in Canada, it insisted that customers use their PINs instead of signatures.

Presumably, credit card companies prefer PINs because they don't trust store clerks, waiting staff and other employees of merchants to take sufficient care over confirming that the card and transaction-slip signatures match. You probably see their point.

What chip and PIN might mean for you

  • If you're a consumer: the only real likely differences are that you'll have to remember a four-digit PIN; you'll have to get used to a slightly different (though just as quick and arguably easier) transaction process; and you are less likely to be a victim of card fraud.
  • If you're a merchant: You're going to have to invest in new, EMV-enabled terminals. But you'd have to replace your existing devices anyway when they wear out, and possibly before, given the growing use of near-field communication (NFC), contactless cards and smartphones. Visa is proposing equipment that is compliant with both EMV and NFC technologies.
  • If you're a credit card issuer: EMV cards cost a little more to produce, but you should save a fortune on your current fraud costs. No doubt you'll be passing those savings right on to customers in lower fees and credit card rates (nudge nudge, wink wink).

"We fear change"

Like Garth on "Wayne's World," some of you might be thinking that if it ain't broke, don't fix it. Old habits die hard - just look how the metric system has taken off in America (not!). But change is inevitable and the benefits of chip-embedded cards are clear. Consider any other technological advance that's come along in the past 10 years and then wonder how you ever got along without it. One thing's certain, when EMV cards do hit American shores, credit card companies will continue to beat the bushes for your business.

Published 09/08/11 (Modified 10/16/12)

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