Is U.S. Ready for Chip & PIN?

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Is the U.S. ready for chip and PIN payment card authentication? Or are American financial institutions and merchants too invested in current technologies to even consider such a move?

The chip and PIN debate has been re-ignited by two recent announcements:

• United Nations Federal Credit Union (UNFCU), a $3.1 billion New York-based institution, is going to start issuing chip and PIN Visa-branded credit cards to its globe-trotting Platinum portfolio members who currently have trouble using U.S.-issued cards overseas.
• Wal-Mart, the big box retailer, essentially drew a line in the sand at a recent industry event, where a spokesperson challenged the U.S. to migrate from its current magnetic-stripe cards, saying "It's time for Chip-and-PIN in the U.S."

Proponents say, indeed, it's time for the U.S. to adopt the EMV standard. EMV, short for the Europay, MasterCard, Visa standard, is the chip and PIN-based standard used to store card data as mandated by EMVCo. EMV has been adopted in virtually every part of the world -- including Canada and Mexico -- for the storing of payment-card data. One of the security advantages: EMV cannot be skimmed. ATM skimming has been a significant source of payment card fraud against U.S. institutions and customers.

But the U.S. maintains a vested interest in mag stripe-based cards and the devices associated with them, and industry experts don't foresee an imminent move to EMV.

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"We have a very complex and fragmented payments card environment," says Viveca Y. Ware, senior vice president of regulatory policy for the Independent Community Bankers of America (ICBA). "Thousands of banks use various payments networks and third-party processors. Banks will have to ensure that their networks and processors have the capability of processing chip card transactions before issuing the cards. Millions of merchants will need to purchase and install new terminal hardware and make sure their processors have chip capability. It's very much a chicken-and-egg scenario."

UNFCU's Move: Serving Global Members
UNFCU's unique membership, which includes United Nations staff, specialized agencies, U.N. retirees and their families, illustrates why a move to EMV for U.S. cardholders made sense. The credit union saw an ever-increasing rate of mag-stripe card rejections for its members traveling overseas.

Merrill Halpern, card services manager for UNFCU, says the move to EMV is one the credit union has been contemplating for a couple of years as a way to enhance member services and improve security. UNFCU has signed with smart-card technology provider Gemalto to roll out EMV to the U.S. membership.

"(Card fraud) has been greater overseas," Halpern says. "And, again, because we're a U.S. financial institution and our members are so global, basically if there's any fraud scheme operating anywhere in the world, we're going to get it. ... Our mag-stripes are available to be skimmed wherever, as are any of the U.S. issuers'."

UNFCU's rollout includes only Visa credit cards, but Halpern says the institution's MasterCard debit portfolio could sometime in the future fall into the fold, depending on member feedback.

"We felt that in order to start this and get some hands-on experience that we needed to start with a small amount, so that we can handle it in a quality manner, and then be assured that everything was in order before we moved on to the other credit segments and eventually debit," Halpern says.

In a statement about the deployment, Visa says it expects both contact and contactless chip technologies to provide opportunities for the introduction of dynamic data into card transactions, which would be a critical advancement against fraud.

"Moving toward more dynamic data and away from static data is a key part of Visa's global security strategy," Visa says. "To the extent that more financial institutions decide to issue chip cards, either broadly or just to individuals that travel internationally, Visa is ready to support such deployments. Based on our many years of leadership supporting chip migration in other countries, there would be no barriers to Visa's ability to support chip in the U.S."

The EMV Advantage
Proponents say EMV-compliant cards are less prone to fraud than their mag-stripe counterparts.

According to First Data Corp., payment card fraud losses in the United Kingdom -- the first region to implement EMV -- dropped from 18 basis points to 12 basis points between 2001 and 2008 as a direct result of EMV adoption.