U.S. Is Slow to Adopt EMV

April 21, 2009

The growing adoption of contactless payment cards in the United States could open the door to a more fraud-resistant—and until now, expensive—security format that has taken off in almost every other country.

U.S. issuers have shown steadfast resistance to the Europay-MasterCard-Visa (EMV) security standard, which uses cards with embedded chips and requires cardholders to enter PINs to authorize transactions at the point of sale. Though executives generally agree EMV offers improved security over standard magnetic stripe cards, they also say U.S. financial institutions and merchants have little interest in footing the bill to distribute cards that feature the chips, or installing the necessary readers at the point of sale.

Contactless payment cards, however, could make the anti-EMV argument obsolete. "There's no reason we can't support all the cardholder verification methods we have today, including EMV, using contactless cards,” Simon Pugh, the head of MasterCard's global center of mobile excellence, told American Banker. "If you look at the technology, it's easy. If you look at the business processes and how you introduce it in a controlled and global fashion, it will require some thought."

The technical specifications of contactless cards and EMV are closely aligned. Both formats define the way a card communicates with a card reader. For EMV, the readers access data stored on the chips in the cards to verify that the cardholders are entering the correct PINs. For contactless cards, the chips transmit the card account number to the reader using wireless technology.

Experts says the contactless format was designed to work with EMV, and there is no technical reason the chips in a contactless card cannot also store a PIN that could be used to authenticate cardholders. In fact, both use the same basic components.

Threat to U.S.

As more countries switch to EMV, criminals will shift more of their energy to the U.S., where the mag-stripe infrastructure is easier to circumvent. “Virtually every major market in the world is adopting EMV, except the U.S.," Jeff Hale, the chief marketing officer of the payments software company ACI Worldwide, explained to American Banker. "Where do you think the fraud is going to go?"

In countries that use EMV, people can initiate purchases with contactless payment cards without inserting the cards into the readers or entering their PINs, but only for small transactions. In Europe, for example, the limit is typically 25 euros. People must insert their cards and enter their PINs for larger transactions. That approach is similar to rules in the U.S. that permit people to use cards for some small purchases without a signature.

Some experts, however, are highly skeptical that EMV will catch on in the U.S. "The U.S. is going to adopt EMV in about the same way the U.S. adopted the metric system. Somewhere between kicking and screaming and not at all," said Ed Kountz, a senior analyst at Forrester Research.

The cost of card fraud is not great enough to justify the expense of changing the enormous card-acceptance infrastructure in the U.S., Mr. Kountz said. "It doesn't seem to have hit a tipping point where it's impossible to bear." Others suggest the U.S. is not going to be moving to EMV anytime soon because the current infrastructure is considered secure enough and fraud losses are written off as a cost of doing business.

But the growing adoption of EMV in other markets, especially Canada and Mexico, is likely to put more pressure on U.S. merchants and card issuers.

Post this page to:

Comments