Wal-Mart Stores Inc. said it is eager to deploy chip-and-PIN card technology as a stronger barrier against point of sale card fraud but that card issuers are balking.
Most U.S. issuers are loath to disrupt the existing model because, according to Wal-Mart, if the EMV Integrated Circuit Card Specifications were to become commonplace in this country, they would lose significant revenue on signature-based credit and debit card interchange fees.
"Issuers and networks are married to signature interchange, and as long as that continues … [it is] hindering U.S. adoption of chip-and-PIN technology," Jamie Henry, Wal-Mart's director of payment services, said last week at the Smart Card Alliance's annual meeting, in Scottsdale, Ariz.
Henry suggested that a government-forced reduction in interchange rates might be the catalyst needed to push U.S. issuers and merchants to broad adoption of the EMV standard that is already common in other countries.
A longstanding industry debate over interchange erupted again this month as the Senate approved an amendment to the financial reform bill that would regulate debit interchange rates.
PIN-based transactions generally cost merchants less than signature-based transactions.
"Lower interchange would push the industry toward chip-and-PIN," Henry said. "We would see more financial institutions become interested in controlling fraud. It would be more difficult to pass [fraud] costs on to merchants."
Only one financial institution in this country has agreed so far to issue EMV cards to U.S. residents: United Nations Federal Credit Union, which announced its plans this month to put a chip in its platinum Visa Inc. card. Visa said that, though it can support any bank or credit union that plans to issue chip-and-PIN cards, it does not expect EMV issuance to become an immediate trend in the U.S.
Henry said Wal-Mart is a "strong advocate" of chip-and-PIN technology globally. Point of sale fraud rates plummeted in markets that have adopted the EMV technology, he noted. "As far as we're concerned, signature [transactions] are a waste of time. Transactions need to be PIN or nothing," he said.
All of Wal-Mart's U.S. payment terminals are able to accept chip-and-PIN transactions, Henry said. But because major U.S. card issuers do not yet support EMV transactions, he said, Wal-Mart has no incentive yet to develop the software and other payment-processing technologies the transactions require.
Richard Mader, the executive director of the National Retail Federation's Association for Retail Technology Standards, said during the same panel discussion that, because their resources are spread so thinly, retailers are waiting for "clearer direction" from card issuers and networks before making any big investment in chip-and-PIN EMV technology.
"As long as there is uncertainty from issuers about chip-and-PIN, retailers will hesitate," Mader said.
Avivah Litan, a vice president and distinguished analyst at the Stamford, Conn., market research company Gartner Inc., said that, despite the security benefit to Wal-Mart from switching to chip-and-PIN, "security's not driving them — lower costs are driving them."
Wal-Mart's talk of the security benefits of contactless cards focuses too much on the point of sale, Litan said.
"In the U.K., the experience is clearly documented that, when chip-and-PIN rolled out, the fraud migrated to card-not-present and cross-border" transactions, she said, though this is not something Wal-Mart could control.
Since Wal-Mart is a global company, Litan said, it probably bought card readers that could work worldwide, so chip-and-PIN acceptance came baked-in.
If the retailer really were motivated by security, it would switch on the readers' ability to accept payments from contactless cards, which some U.S. issuers have offered for years. But contactless payments cost more to accept than PIN payments, Litan said.
"In fairness to Wal-Mart, most consumers don't have contactless," she said, and, whatever the retailer's motivation, in the big picture "it doesn't really make sense for the U.S. to be on another standard" from EMV. "It costs more in the long run" for issuers and merchants alike.