May. 6, 2012
There’s no federal edict to replace fraud-prone magnetic-stripe credit and debit cards with the more secure EMV chip card, but the payment card networks have unveiled various plans in the past year to encourage U.S card issuers, merchant acquirers, and merchants to board the EMV train. Exactly how a U.S. version of EMV would work is far from settled, however.
“It’s not clear what it’s going to look like,” said Pete Korpardy, senior vice president, Global Network Management, at leading payment processor First Data Corp. Korpardy and Mario de Armas, senior director of international payments at No. 1 retailer Wal-Mart Stores Inc., walked an audience through some of EMV’s issues during a session at the NACHA Payments 2012 conference last week in Baltimore.
De Armas reiterated Wal-Mart’s well-known position that the company does not support any U.S. EMV plan that eliminates or marginalizes the PIN in favor of signature authentication. “Signature is a worthless form of authentication, it’s worthless,” he said, using wording similar to what other Wal-Mart executives have used at recent conferences when speaking about EMV.
The chip-versus-signature dichotomy has emerged as one of the hotter debate points since Visa Inc., the largest payment card network, last summer outlined a plan for the U.S. to migrate to EMV. MasterCard Inc. and Discover Financial Services have since revealed their own plans, though none of the networks has yet divulged the full details that acquirers say they’ll need for widespread EMV implementation. Visa’s plan puts low emphasis on the PIN, focusing more on so-called dynamic authentication using one-time transaction identifiers while also acknowledging that signature could also play a role in EMV.
Those multiple forms of authentication options are coming to be known as “chip-and-choice” in contrast to the more common “chip-and-PIN” variety of EMV. Korpardy of Atlanta-based First Data, which has extensive international operations, said about 90% of point-of-sale devices in Europe are configured for chip-and-PIN, as are 75% of cards.
Another bone of contention is the type of EMV chip. Most EMV cards have a contact chip that the cardholder “dips” into a terminal at the point of sale. In contrast, the networks are encouraging U.S. acquirers and merchants to accept both contact and contactless chip cards, the latter of which the cardholder would tap on a terminal. Wal-Mart is EMV-capable in many countries, but de Armas says its experience with contactless chip cards consists of a test at 25 stores in the United Kingdom. “Contact is the way to go,” he says.
In the U.S., many backers of contactless terminals see the devices as supporting the eventual expansion of mobile payments. But de Armas is suspicious of what he calls “device duality.” He says most U.S. merchants that installed contactless chip card readers (Digital Transactions News has estimated the U.S. has about 200,000 such terminals) did so “because they were paid to” by the networks. Device duality “gives them [Visa and MasterCard] one more tool they need to direct the transaction” to their own networks at a time when merchants are looking for as many routing options as possible, he adds. “I see it more as a Trojan horse.”
New Federal Reserve regulations require debit cards to give merchants at least one unaffiliated network choice for transaction routing (unaffiliated meaning that at least one PIN-debit network accessible through the card is unaffiliated with the card’s signature brand).
Visa and MasterCard don’t agree that they’ve imposed any hard and fast EMV parameters. “Visa’s roadmap supports a lot of choices for merchants,” a Visa source says. “They don't have to deploy dual terminals, they can support PIN; there are no mandates.”
A MasterCard spokesperson adds that “in creating our roadmap earlier this year, we took a consultative approach, gaining insight and perspective from across the payments industry--merchants, issuers, acquirers, and processors … We were deliberate in not issuing any mandates, but instead focusing on driving toward greater security and an enhanced consumer experience.”
The big carrot in the bank card networks’ plans is relief for merchants from annual validation that they meet Payment Card Industry data-security standard (PCI) requirements if they generate most of their card transactions on EMV terminals. The sticks are eventual liability shifts to merchants for bad transactions from locations that don’t support EMV.
Despite Wal-Mart’s disagreements with parts of the networks’ initial U.S. EMV plans, de Armas says Wal-Mart has “been very pro-EMV for a long time.” Wal-Mart recently converted its stores in Canada, the newest EMV country, to the technology, and is configuring its POS systems in an undisclosed number of its nearly 3,900 U.S. stores for EMV acceptance.
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