Chase And Wells Chip Card Deployments Could Lend Impetus to EMV in the U.S.

The announcements last week that two top-10 U.S. banks will soon start issuing smart cards based on the EMV chip card standard, while largely symbolic for now, could herald bigger deployments later on. Normal banking competition, meanwhile, could also bring more U.S. banks to issue chip cards, bank executives and experts tell Digital Transactions News.

“We will be announcing additional consumer cards in the next few months,” says a spokesperson for JPMorgan Chase & Co. in an e-mail message, without being specific. Chase last week said it will issue an unspecified number of chip cards starting in June to holders of its high-end Palladium credit card. These customers are frequent international travelers and usually have relationships with the bank’s private bank, investment bank, or wealth-management units.

The moves by Chase and by Wells Fargo & Co., which last week announced that starting midsummer it will issue chip cards to 15,000 credit card customers who travel frequently abroad, represent the first time major U.S. banks have committed to the EMV standard. Up to now, the biggest U.S. development was the announcement earlier this year by North Carolina’s State Employees Credit Union, the nation’s second-largest credit union, that it will replace its entire 1-millon-card debit portfolio with EMV cards by year’s end. Last year, United Nations Federal Credit Union, with 88,000 members, said it would convert its cards to EMV.

The standard, developed in the 1990s by major card systems including Visa Inc. and MasterCard Inc., has been adopted by most developed countries, but the United States has been a long-time holdout. EMV’s chip-based intelligence is widely seen as ultimately replacing the commonplace magnetic stripe on payment cards, though the mag stripe enjoys a substantial cost advantage over chip deployment.

The Chase and Wells deployments, though limited, could trigger competitive responses from other big banks, observers say. Just the fear of losing frequent travelers, who are often also high-income customers, could push some banks into issuing chip cards to at least some of their customers. “Our primary motivation [behind issuing chip cards] is keeping our cards top-of-wallet wherever our customers travel,” says Eric Schindewolf, vice president of product development for Wells Fargo consumer credit card. He says comments from customers indicated they were having “acceptance difficulty” with their mag-stripe cards, particularly in Europe.

Being among the first to issue chip cards for these high-value customers could confer competitive advantages, some experts say. “You would want to do that if you’re competing for high-net-worth individuals,” says George Peabody, director of the emerging technologies advisory service at Mercator Advisory Service, Maynard, Mass. Peabody argues, indeed, that these customers would be willing to pay a fee for EMV cards.

It’s too early to say how much either bank will expand its EMV program, though Chase appears to have definite plans to do so. “The chip-enabled cards will be made available to other Chase-branded cards and cobranded cards before the end of the year, with preference going to those cards that have the most international travelers,” says the spokesperson. Wells calls its deployment a “pilot” and Schindewolf says any expansion will depend on pilot results.

While both banks are starting with credit cards, some observers say the Durbin Amendment, which applies to debit cards, could also spur U.S. EMV development. The law grants issuers some allowance, yet to be defined, above its interchange limits for fraud-control measures, among which EMV is thought to be included. Aaron McPherson, practice director for financial services at IDC Financial Insights, says the Wells and Chase deployments represent “a methodical approach” that will give them a base on which they could expand issuance into debit cards once the fraud allowance is clarified by the Federal Reserve, which is charged with Durbin rulemaking. “I’ve always been pretty skeptical of EMV, but the more I think about how Durbin changes things, the more I think it might be happening [in the United States],” McPherson says.

Still, in an interesting twist, neither bank seems enthusiastic about the PIN part of chip and PIN, as EMV chip cards are typically defined. Chase is not even issuing PINs, so its customers will authenticate themselves with signatures. Wells is issuing PINs but says it prefers signatures, with PINs for use in overseas kiosks and other unattended devices. “Chip and signature is more widely accepted around the world,” says the Chase spokesperson, arguing PINs are limited chiefly to France and the U.K. “We do not expect any acceptance issues.” Both banks also argue their customers are more accustomed to signing for credit card transactions. “I see it as a move to avoid user confusion,” says Mercator’s Peabody.