Chip-Based Cards Coming To United States, Migration Expected To Take Five Years - Business Travel News

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Chip-Based Cards Coming To United States, Migration Expected To Take Five Years

December 07, 2012 - 01:30 PM ET

By Mary Ann McNulty

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 world.

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 Procurement. 

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