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A large number of card-fraud arrests in October prompted some to predict that chip-card technology could soon put an end to such crimes. Not so fast. Even in the best-case scenario, it would be several years before the technology could make a meaningful dent in skimming fraud in the U.S.
October 31
Bank of America Corp. is the second major issuer to buck a recent trend by using a PIN when it offers U.S. commercial customers cards that incorporate the EMV chip-card standard that is prevalent in Europe.
The PIN is so commonly used to provide added security for EMV chip-cards that the products are more frequently called chip-and-PIN cards. But JPMorgan Chase & Co. and U.S. Bancorp earlier this year announced plans to use a signature only to authenticate chip-based cards. Wells Fargo & Co. seems to be keeping its options open — a spokeswoman says its EMV pilot "enables both signature and PIN-based cardholder verification."
B of A's EMV card strategy is instead like that of Citigroup Inc., which in August announced plans to roll out cards that are explicitly chip-and-PIN for commercial customers.
B of A, of Charlotte, N.C., will make chip-and-PIN cards available to its commercial-card users beginning in January, joining a growing movement among issuers to ease card-acceptance obstacles for frequent overseas business travelers, the company announced Tuesday.
"We're going the chip-and-PIN route versus taking the simple chip-and-signature route many others have done because we want to ensure there will be no acceptance issues anywhere for customers," says Kevin Phalen, head of commercial cards and comprehensive payables for Bank of America Merrill Lynch.
B of A is adding the PIN feature to ensure customers can use the cards virtually anywhere abroad, including at unattended EMV-based payment terminals and kiosks where a PIN is sometimes required, Phalen says.
Where no PIN is required, companies can handle U.S.-issued chip-and-PIN cards with only a signature. As with all other U.S.-issued EMV cards, B of A's card also will have a magnetic stripe for use with payment terminals that do not accept smart cards.
The card's chip helps prevent cloning, which is a common fraud tactic for duplicating magnetic-stripe cards. Chip-based cards block most counterfeit card fraud, and the use of PINs helps deter misuse of lost and stolen cards, according to card-security experts.
As chip-based cards become increasingly common worldwide, more U.S. banks have announced plans to issue EMV-based payment cards to frequent travelers and commercial cardholders to eliminate acceptance obstacles, especially in Europe, where many payment terminals require a chip card.
There are arguments both for and against the PIN and signature-only approaches, depending on an issuer's goals and the spending patterns of its customers, experts say.
In most cases, cardholders traveling abroad will not encounter acceptance problems with U.S.-issued chip-and-signature EMV cards, says Guy Berg, an executive with Datacard, a Minnetonka, Minn., company that offers EMV consulting seminars to U.S. issuers.
A "small" number of payment terminals in Europe require a PIN because they lack a live communication connection to a card-payment network for immediate authorization, so such transactions are authorized "offline," Berg says.
A cardholder traveling throughout Europe by train, for instance, may encounter occasional train-ticket payment terminals that require a PIN for offline authorization, he says. "But the vast majority of EMV-based payment terminals and kiosks outside the U.S. will accept a U.S.-issued signature-only EMV card with no problems," Berg says.
Some merchants abroad are unfamiliar with signature-only cards, says Randy Vanderhoof, executive director of the U.S.-based Smart Card Alliance.
"The card works fine, but sometimes you're dealing with a lack of merchant awareness and language barriers, forcing the cardholder to explain the card's technology, and that can create confusion," Vanderhoof says.
To avoid such problems altogether, B of A decided to make all its EMV cards chip-and-PIN, Phalen says.
"The reality is that with only a chip plus a signature, users may still have problems using their EMV cards at unattended terminals and train-ticket kiosks," Phalen says.
However, the chip-and-PIN approach can create additional hassles for U.S.-based business travelers because it requires additional cardholder education, says George Peabody, director of emerging technologies at Mercator Advisory Group.
"Remembering an infrequently used PIN that's different from [that of a customer's personal] PIN debit card can cause customer service problems, too," Peabody says, noting that for many issuers the added complexity of the chip-and-PIN approach is not worthwhile when the likelihood of cardholders encountering acceptance problems is "so small."
The decision by some banks to go signature-only "avoids having to issue PINs and [the] investment into the PIN management capabilities that it implies, so I can understand why a particular market may want to go that route," says Zilvinas Bareisis, a senior analyst with Celent.
However, if no PIN is available to use at the point of sale, the merchant may choose to use the less-secure magnetic stripe, Bareisis says.
B of A developed its chip-and-PIN card "in response to customer demand," Phalen says. The bank's first EMV card application is for travel-and-entertainment cards, and eventually the bank plans to add EMV capabilities for purchasing cards, he says.
The bank introduced chip-and-PIN cards last year for corporate clients in Europe, Phalen says. That product was well-received, he says.
B of A's commercial chip-and-PIN card is offered as a Visa and a MasterCard in the U.S.; it is offered only as a MasterCard in Europe. B of A so far has no plans to launch a consumer version of its EMV card, bank executives said.
"Because chip-enabled cards can store more data to enable more functions, we see this offering as a first step toward developing more commercial card capabilities," Phalen says, declining to specify future EMV card capabilities.
"The next step from here is to continue to move to contactless payment for commercial cards and ultimately to full integration [of commercial cards] with mobile devices," he says.
Phalen did not specify the timeline for adding mobile features to commercial cards, noting that it is "a bit further off."
B of A is among the last major banks to announce an EMV card program for U.S. travelers and corporate card users, but "by the time the card rolls into the market we'll be right in step with those that have previously announced plans to roll out EMV cards," Phalen says.
