Perhaps the biggest issue in financial services during the last half of calendar 2015 – along with the Federal Reserve’s December decision to raise interest rates – was the Europay, Mastercard, Visa or EMV Chip Card.
While major institutions like Chase and stores like Target made the transition with their customers, recent surveys reveal that 56 percent of Americans don’t even know what an EMV chip card is. Even those Americans who have the new card have complained of problems with its use, causing holiday headaches for shoppers and EMV merchants during the hectic holiday shopping season.
Financial institutions need to view the EMV card as an educational opportunity for its customers
While the EMV card is a new financial tool on this side of the pond, the card has been in use in Europe since 1994. The card is named for the first three companies to introduce the technology to cardholders more than two decades ago, Europay, Mastercard and Visa.
The EMV standard was written in 1993 and 1994 and spread quickly in Europe over the mid-2000s. Cards equipped with EMV chips require a pin code for every transaction, and the information exchange between terminals is much larger, meaning that payments with EMV are easier to track and handle.
The technology is currently managed by EMVCo, a consortium which includes Visa, Mastercard, ICB, American Express, China Union Pay and Discover.
The chip technology at the heart of the new card contains an embedded microprocessor, a type of small computer that strengthens security and other capabilities not possible with traditional magnetic strip cards.
But all of this begs the question: If EMV transactions are more secure, why is it that some countries, the United States for example, still have a majority of their debit card payments done with magnet-strips and signatures?
The EMV transition is a long process
New card readers have to be introduced and consumers will have to remember a PIN instead of providing a signature alone.
However, figures from countries that already went through the transition show that the process is worth it, due to the marginally reduced amount of fraud and security breaches. That language alone surely resonates with Target, EBay, Home Depot and JPMorgan Chase, all of whom suffered major data breaches in recent years.
While 96.6% of all transactions in the EU were done through the EMV standard in 2014, slightly more than one-tenth of one percent of U.S. transactions were completed with EMV in 2014. That’s a big jump, considering that only three one hundredths of 1 percent of the transactions in the United States used chips and PIN.
Now, however, 600 million debit cards fitted with EMV chips were expected to be issued by the end of 2015, according to the Smart Card Alliance, meaning that the American banking system is making the transition.
There is anecdotal evidence to suggest that while the United States is making the transition, not all merchants in the U.S. who accept the EMV are requiring PIN numbers, but only required a signature, reducing the safety that’s the key selling point for the new cards.
And the business cable network CNBC reported that at many retailers, shoppers still had to swipe the magnetic stripe on the new chip-enabled cards rather than insert it in a reader.
Edgar Dworsky, founder of ConsumerWorld.org, surveyed 48 national and regional chains and found that only one in four had payment terminals able to process the chip security. That’s an indicator that despite the October 1, 2015, deadline to transition to EMV, the transition has been slow.
In order to answer the question of why the U.S. has been slow in its migration to the EMV, examine consumer behavior, and look at how the EMV standard was introduced in other countries. In the United Kingdom, the standard arrived with a nationwide ad campaign promoting the security provided by EMV transactions over magnetic strips with the slogan “Safety in Numbers”.
The campaign provided statistics about card fraud and the vulnerability of debit cards. Afterwards, British banks began issuing cards with both EMV chips and magnetic strips, and the legal environment for customer protection was established in 2009 by the Financial Services Authority.
What can banks do to promote the introduction of the EMV standard in America?
In Britain, the aforementioned law made banks liable for fraud committed with stolen or counterfeit cards. Because EMV cards are harder to clone, easier to track and PINs are harder to breach, the banks took on the task to shift over to the standard as soon as possible,
Some banking institutions in the US have already announced their change of liability when it comes to fraud done through an ATM, making the ATM owners or operators responsible in case the machine wasn’t equipped to process cards with EMV.
On the customer’s side, an advertisement campaign highlighting the common issues present with magnet-stripes and signatures and the relevant statistics about annual credit lost due to the security breaches in the US, would surely motivate customers to seek banks that provide cards equipped with EMV chips. Typing in a PIN code instead of just signing a bill would be a much better alternative for everyone.
The main issue in regards to the transition is the ability of smaller merchant to accept EMV payments, which means that even if the migration to EMV is completed, customers will still be using magnetic strips and signatures for most of their everyday transactions. Maybe we’ll see a shift of liability in the future to those merchants who aren’t equipped with EMV compatible card readers.
This will force small businesses to adopt to the EMV chip cards. If not, either the Congress or banking institutions may force their hand.
However, given the increased security and other features provided by the EMV, it seems to be a no-brainer for the shops on Main Street.
One note to consider in closing: A December 2015 article by the National Retail Federation revealed that criminals are mopping up thanks to the chipless debit card, which accounted for 30 percent of fraud, compared to 16 percent in 2014.
