U.S. financial companies may be overestimating the technical hurdles of adopting the EMV Integrated Circuit Card Specifications, according to payments executives.
Much of the world has already moved to the EMV security standard or is planning to do so, but U.S. banks have shown no interest in the format.
Banks generally say the cost of a national transition to EMV would be prohibitively high because it would require issuers to distribute new cards and merchants to install new readers.
But Simon Hurry, a Visa Inc. senior business leader, said that U.S. payments companies should consider a less demanding version of the technology that would be less costly to adopt.
Hurry said that in many parts of the world, poor telecommunications infrastructure forces companies to authorize transactions offline and that these payments require heavy layers of security.
In contrast, nearly every U.S. card transaction is immediately authorized online, due to fast, efficient telecommunications infrastructure, he said, so there is no need for a heavy-duty offline authorization capability.
"Much of the complexity" of offline EMV authorization "could be dispensed with," he said. "It could radically simplify things as well as lower costs."
Hurry spoke during a Jan. 26 Web seminar, titled "The Top 10 Reasons U.S. Should Consider EMV," held by the Smart Card Alliance.
Randy Vanderhoof, the alliance's executive director, said in an interview that an "EMV light" approach designed for online-only transactions would probably use less expensive cards, because the chips would need less memory, and also cost less to process.
"From a practical point of view, if U.S. issuers chose to do the online-only authorization model, it would be less costly," he said. "We believe industry analysts haven't really taken that into consideration when looking at the business model for implementing EMV in the U.S."
The EMV standard was devised two decades ago to combat fraud, at a time when most transactions abroad were processed offline, Vanderhoof said. Though online transactions are becoming more common worldwide, in some countries about half the transactions are processed offline, according to the alliance's data. As a result, most EMV cards are designed for offline authorization.
Growing pressure has emerged for U.S. companies to reevaluate their EMV stance, according to Deborah Baxley, a management adviser at KeyPoint Consulting. The standard has proven effective against fraud, she said. "It is almost impossible to counterfeit a chip card," she said during the Web seminar. For example, the loss rate on payment cards in the United Kingdom, the first country to fully adopt EMV, declined from 18 basis points in 2001 to 12 basis points last year.
And as more countries adopt EMV, card fraud is likely to shift to regions that do not use EMV, notably the United States, she said.
The global movement toward EMV is also starting to affect U.S. travelers, who are increasingly having problems using their magnetic stripe cards abroad.
Nick Holland, an Aite Group senior analyst, said that magnetic stripe cards will become "increasingly marginalized" in countries that use EMV. As a result, issuers should consider offering EMV cards to U.S. cardholders traveling to those countries, he said.
