Mag-Stripe Dead by 2015? Not Likely, If U.S. Follows Canada's Lead

LAS VEGAS — The U.S. is already lagging other countries in its conversion to a secure chip-card format. And if Canada is any example, the U.S. may continue to lag despite the aggressive deadlines set by the card networks.

Visa Inc. was the first network to establish a timeline for merchants and issuers to shift to the secure EMV chip standard, with the earliest deadline coming this October for merchants. And by October 2015, most merchants will have to accept chip cards to avoid taking on the liability for fraudulent payments.

But deadlines are made to be broken. Indeed, Canada is still not completely EMV-compliant, although its liability deadlines fully took effect last year, said Oliver Manahan, the vice president of emerging payments at MasterCard Inc. who oversees chip card programs in the U.S. and Canada.

"Rumors of our completion [of EMV conversion in Canada] are greatly exaggerated," Manahan said this week at the Cartes in North America Expo & Conference.

In Canada, only about 80% of bankcards are EMV-compliant, along with "about three-fourths of point-of-sale terminals and about 40% of ATMs," he said. Canada's EMV-compliance deadlines originally were set for October 2010, but merchants and banks demanded a postponement.

Despite the setbacks in Canada, Manahan did not suggest the same delays are inevitable in the U.S.

The U.S. move to EMV, if it stays on track, is likely to accelerate other markets (including Canada) to complete their EMV conversions, Manahan said. A shift to EMV would close off the U.S. to mag-stripe fraud, which could leave any countries without EMV programs further exposed, he said.

Difficulties in the EMV conversion could come from midsize merchants, said Jane Cloninger, a partner with Edgar, Dunn & Co., in a presentation. Very large merchants "will largely take care of themselves" and small ones can count on "merchant acquirers [that] will push out the EMV technology to them," she said.

But thousands of merchants that do not fall squarely into either the very large or very small category will have the toughest time in the U.S. EMV shift. "The mid-tier merchant is where there is a lot of confusion, and a lot of education needs to happen in that segment," she said.

There is some momentum among banks in the U.S., where a few major issuers already offer EMV cards to U.S. residents. But few, if any, major banks or merchants were visible at the Cartes conference.

"It was a lot of vendors eyeing the U.S. as a potentially big, juicy new market for EMV and mobile-payment services," says Paul Coppinger, president of Scottsdale, Ariz.-based payment software developer Apriva LLC.

The North America conference had about 1,500 attendees. Cartes' regular show in Paris, which began in 1985, draws about 20,000 people each fall.

So far, the strongest signals of EMV momentum are coming from card and chip manufacturers, although no hard figures are available.

"We hear card manufacturers have seen a significant jump in interest in orders for chip-based cards, and we're in discussions with a lot of merchants and also the card brands about technical plans," said Michael English, executive director of product development at Heartland Payment Systems Inc., in a presentation about significant dates and requirements to adopt EMV.