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EMV, Chip & PIN Going Around the U.S.

The EMV specifications were first developed in 1994 by Europay, MasterCard and Visa as a way to maintain a global standard of interoperability amongst payment cards based on chip technology. Offering enhanced security features EMV and Chip & PIN cards have gained widespread use throughout much of Europe while continuing to expand in other regions, such as Asia and Canada, but have yet to gain acceptance in the United States.

The U.S. lags behind in card fraud protection. While our neighbors to the north and across the pond have credit cards with micro chips, American payments still revolve around the outdated magnetic stripe. The chip makes cards very difficult to replicate and the PIN authenticates the consumer, both features adding security to credit card transactions.

While the Euro Zone converted to EMV in 2005 the U.S. has kept the stance that they won’t migrate to a payment form which may too soon be obsolete. The nations using EMV have continued to accommodate mag-stripe transactions, but their patience is wearing thin. While new programs incentivize increased use of EMV outside the U.S. the European Payments Council is allowing banks to refuse magnetic stripe based transactions all together.

Visa started a new program to encourage the use of Chip and PIN cards and smartcard-enabled payment terminals, the program is launching in every region but the United States. The incentive for merchants is that if 75 percent of their annual Visa card transactions originate on smartcard-enabled terminals they do not have to validate their PCI Data Security Standards compliance. To qualify merchants must have payment terminals that are compliant with the EMV smartcard standard and are able to take both traditional and contactless payments.

Under the program merchants are still required to be PCI compliant, but they no longer have to prove this compliance to Visa if they meet the requirements. The reason Visa stated for not extending the program to U.S. merchants is because of the uncertainties created by the proposed debit card interchange cap. But even if Visa’s offer applied in the United States it is doubtful that it would push a substantial number of merchants to adopt the EMV technology.

In the last few years there have been more stories about U.S. tourists abroad, as well as tourists visiting the United States, that have had trouble using their credit cards outside of their home country. These troubles will only worsen. The European Payments Council released a document, titled Preventing Card Fraud in a Mature EMV Environment, which included two resolutions. The first resolution allows banks to refuse magnetic stripe transactions while the second seeks to restrict the use of magnetic stripe cards to only exceptional cases.

This means that European travelers visiting the U.S. will have more trouble using their credit cards as their issuing banks can decide to decline transactions when a merchant tries to use the magnetic strip for authentication. American tourists visiting Europe could also have trouble using their outdated card technology as merchants restrict the use of mag-stripe transactions to exceptional cases. Ultimately it is up to the EMV issuing banks to decide whether or not to authorize magnetic stripe transactions, but this could affect U.S. merchants that cater to international tourists who may soon need to invest in Chip and PIN card readers.

Transitioning to EMV payments is a large investment requiring merchants to purchase new card readers and banks to issue EMV cards. This has been the single greatest factor contributing to the lack of EMV adoption in the United States, especially when NFC and mobile payments threaten to displace credit cards, regardless of whether they're mag-stripe or EMV. But until credit cards are dethroned, there is likely to be increased friction in payment compatibility between the U.S. and Europe. Some U.S. banks are issuing Chip and PIN cards to their wealthier clients who frequently travel internationally, but that is about the extent of EMV in the United States.


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