America's payment infrastructure is set to begin next spring
a multiyear migration to chip-based card technology already adopted in most
regions of the world. As one of the last countries to replace magnetic stripes
and signatures on cards with a chip and personal identification number or
signature security standard, the United States has the advantage of learning
from the experiences in other countries. But it also is disadvantaged until the
conversion occurs because the market remains a fraud magnet for the rest of the
In a third-quarter survey of 5,223 cardholders in 17
countries, payment consulting firm Aite Group and industry software provider ACI
Worldwide found that fraud rates were highest in Mexico and the United States,
where 44 percent and 42 percent of respondents, respectively, said they
experienced card fraud. Meanwhile, a European Central Bank report in July said
card payment fraud in that region declined by 12.1 percent since 2009, in part
because of EMV.
"Increasing counterfeit card fraud led the financial
industry to move to smart chip technology for bank cards and develop the global
EMV specifications," according to a Smart Card Alliance Payments Council
white paper issued in September. Taking its name from original standard
developers Europay, MasterCard and Visa in the late 1990s, EMVCo currently is
owned and operated by American Express, JCB International, MasterCard Worldwide
and Visa Inc. It reported that by the end of 2011, 45 percent of all payment
cards, or 1.5 billion, and 76 percent of all payment terminals, 21.9 million,
used globally (excluding the United States) were based on EMV standards.
To entice U.S. card issuers, merchants, acquirers,
processors and others who comprise the payment network to retrofit by 2017 the
cards, devices, terminals, ATM machines, processes and other technology, card
networks outlined a roadmap to shift fraud risk and liability—and presumably costs.
The networks require processors by April 2013 to support EMV
chip-based contact, contactless and mobile transactions. Networks hope that
rapid growth of mobile payments will prompt merchants to upgrade equipment. "EMV
is a worldwide common standard that ensures global acceptance and
interoperability and supports new form factors beyond cards, including keychain
fobs, microSD memory cards, adhesive stickers and Near-Field Communications
phones," according to the Smart Card Alliance Payments Council. EMVCo and
the NFC Forum this fall announced plans to collaborate on mobile device testing
and explore alignment of their respective standards.
Starting next year and continuing for five years, American
Express, Discover, MasterCard and Visa plan to provide relief to merchants and
other system users for such things as costly Payment Card Industry [data
security] audits, data compromise risks and ATM counterfeit liability. The
networks have tried to harmonize milestone dates for their respective liability
shifts, but differ in how they define those shifts and authorizations for
online, offline and mobile transactions.
"EMV acceptance represents a dramatic departure from
the simple magnetic stripe card for the acquirer, processor, merchant and
cardholder," according to the council. "Although there is the promise
of reduced fraud and greater payment security, there is a good deal of cost,
systems work, analysis, process, training and patience that will be needed for
the acquirer or processor to accept EMV transactions."
Merchants and cardholders might need some of that training.
Contact versions of an EMV card, for example, need to remain in a reader during
a transaction, unlike magnetic stripe cards. In the case of EMV contactless
cards, "even those U.S. merchants that installed contactless peripherals
will need to update clerk training as most cardholders are not using the
readers for contactless cards," according to the council.
EMV Migration Forum, a newly formed industry group, is
slated in December 2012 to hold its second meeting at Visa's Foster City,
Calif., headquarters. Since its first meeting in September at MasterCard
headquarters, the forum has secured 38 members and formed working groups to
target communications, education, certification, testing, debit cards and
coordination of the massive migration for financial institutions, merchants,
processors, acquirers, regional debit networks, device manufacturers and
industry associations. The migration also will impact corporate cardholders and
program managers, but thus far those needs haven't been addressed.
This report originally
appeared in the November 2012 issue of Travel