If the U.S. government could mandate the switch to digital TV, why can't it mandate that credit and debit card issuers switch from magnetic stripe cards to the EMV Integrated Circuit Card Specifications to improve security?
Richard Oliver, an executive vice president with the Federal Reserve Bank of Atlanta's Retail Payments Forum, has posed that question, arguing that the growing security vulnerabilities posed by magnetic stripe cards could warrant policy action by the government.
Oliver is leading a series of meetings organized by the Boston and Atlanta Federal Reserve banks that include about 30 companies and industry groups to discuss the future of payments in the U.S., which is far behind Europe and Japan's adoption of the chip-and-PIN technologies included in EMV standards.
The forum has met three times and is scheduled to meet again this fall; the goal is to issue a white paper at yearend. If Oliver's statement is any indication, the group is likely to argue for the adoption of EMV in the U.S.
"The Fed decided it should understand more of what's going on in the mobile marketplace, who's involved and what role the Fed should play," said forum member Lisa Stanton, the executive director for global alliances at the mobile banking software vendor Monitise Americas LLC, a Providence, R.I., joint venture of Fidelity National Information Services Inc. and the London technology vendor Monitise PLC.
The big question forum members are asking, Stanton said, is whether the current payment system is really broken enough to justify the cost of fixing it.
Cost isn't a small issue. The Smartcard Alliance estimates that 6 million merchant devices would need to be replaced or upgraded to accept EMV cards, with the bulk of the costs falling on merchants.
However, Oliver wrote in a recent report that the cost of not converting might be significant in other ways — specifically, less security and less innovation.
"First, we may become the only substantial economic power dependent on a payments standard that is less secure than that of the rest of the world. That means that criminals, intent on profiting from card fraud, will continue to migrate to the United States.
"The second issue is that chip-and-PIN technology is a critical element in progressing toward an even more secure and visionary goal — the deployment of mobile phone-based payments capabilities using a chip embedded in the phone," he wrote. "Chips embedded in the phone, coupled with applications loaded on the phone from card-issuing banks, will create the effect of a 'mobile wallet' that promises to be more convenient and, yes, more secure than what we use today."
Avivah Litan, a vice president and distinguished analyst at Gartner Inc., said it makes sense for the Fed to become involved, raise awareness and agitate for policy changes. "It's good the Fed is taking a leadership role. It gives people a chance to meet each other and network, and that's the way you get things down," she said.
Litan said banks have a vested interest in working with the Fed and the rest of the forum. "Incrementally, if banks don't do anything, mobile payments will occur anyway."
And Oliver certainly wants to keep the discussion top of mind. "If we want to mitigate the possibility of the United States being a center of card fraud and enable our consumers and business folks to travel abroad more easily, it may be time to charge someone in government with developing a well-thought-out, participatory, multiyear plan to move this country to the emerging global payments card standard."
