U.S. EMV Pioneers Like Wal-Mart And SECU Are Gung-Ho, But Others Show Less Enthusiasm

At least some banks and merchants may be forging ahead into chip card payments, but presentations at an industry trade show this week leave doubt whether the rest of the industry is ready to follow.

Wal-Mart Stores Inc. has now enabled all of its U.S. stores with terminals to accept chip cards on the so-called EMV chip-and-PIN standard and is “working on rolling out the software” for the payments, Jamie Henry, senior director of payments services for the Bentonville, Ark.-based retailing giant, told the audience at the Smart Card Alliance annual conference in Chicago. EMV is a technical standard that allows chips embedded in cards, rather than magnetic stripes, to control transactions. Henry added Wal-Mart stores in Canada will be rolling out chip-and-PIN acceptance “within the next few weeks.”

If Wal-Mart had its way, mag-stripe cards would disappear immediately, to be replaced with cards running chip and PIN. “We want to eliminate the fraud-prone mag stripe,” Henry said. “It has served its purpose.” He said the chain is encouraged by recent announcements by JPMorgan Chase & Co. and Wells Fargo Co. that the banking giants will issue EMV cards to customers who travel overseas, where EMV is prevalent, but noted some impatience with such limited issuance. “We want to offer the most secure environment for people to pay us,” he told the audience. “We believe it needs to move beyond international travelers.”

Banks may be reluctant to issue the cards, which are more expensive than conventional mag-stripe plastic, to all of their credit and debit card holders, but Raleigh, N.C.-based State Employees Credit Union is in the process of replacing all of its debit cards with EMV cards. Leanne Phelps, senior vice president for card services at SECU, told the conference the credit union started with overseas travelers this spring but will have all of its 990,000 debit cards replaced by the end of the year. “It was a simple decision,” she said. “If we’re going to do it, we’re going to do it all the way.” SECU is one of the largest credit unions in the country, with 1.6 million members and 236 branches.

But such gung-ho attitudes don’t appear to be widely shared among financial institutions and merchants, according to other speakers. A chief reason to move from mag stripe to EMV is that the latter is harder for criminals to counterfeit, but senior strategists within banking organizations aren’t moved by fraud considerations, said Andrew Dresner, a partner at consultants Mercer Oliver Wyman. “Fraud is one of the last things you can get them to talk about,” he told the audience. “Their eyes glaze over.”

The problem is exacerbated by the Durbin Amendment’s caps on debit card interchange, he added. The Federal Reserve, charged with implementing Durbin, has proposed a 12-cent top price for debit transactions. “Why should [banks] spend $1 or $2 [on EMV cards] if they only get 12 cents back?” asked Dresner. “If you’re a bank, what’s the value of the investment?”

While the language of Durbin allows for interchange relief in return for fraud-control expenses, the language is vague and the Fed has not yet proposed a rule defining how much more interchange issuers could receive. In any case, “fraud losses on an aggregate basis are simply not enough to fund the change” to EMV, Dresner maintained.

As for merchants, few are showing any interest in following in the footsteps of Wal-Mart. Some 70% to 80% of VeriFone Systems Inc. terminal shipments into retail stores are not EMV-capable, estimated Erik Vlugt, vice president for product marketing at the terminal maker. “We’re still shipping a lot of terminals without smart card readers,” he told the conference. Cost is the main barrier. “Large merchants whose names you would recognize are choosing not to install [readers] because of the [incremental] price,” he said.

Still, executives like Phelps see urgency in combating fraud. Her counterparts within big banks may be unconcerned by fraud losses, but she says the cost of fraud was a prime reason that SECU moved on EMV technology. The credit union lost $1 million to counterfeit fraud last year, and she told Digital Transactions News it blocked about another $500,000 in attempted fraud. “Fraud is a huge issue with SECU,” she told the audience. “Everything we lose is our members’ money. And it keeps growing.”