Smaller payment card issuers would provide the strongest data security and enable their customers to shop anywhere in the world by opting to add chip-and-PIN EMV technology to their magnetic stripe cards as the U.S. moves toward full smart card adoption, a new report suggests.
However, an EMV chip-and-signature option also might serve customers well in certain instances, so banks and credit unions should be clear on what they expect from their EMV strategy, Aris Jerahian, vice president of client relations for The Members Group, tells PaymentsSource.
Jerahian authored “Chip Card Debate,” a white paper from The Members Group weighing the pros and cons of chip-and-signature and chip-and-PIN technology. It also provides information about how the smart card technology evolved in Europe (
Des Moines, Iowa-based The Members Group provides payments-technology expertise for credit unions and consultation on industry trends.
“While I definitely recommend chip-and-PIN, I do make sure to ask our clients why they want to issue a chip card,” Jerahian says.
If the client claims most of its cardholders often travel around the world, then that financial institution should issue chip-and-PIN for full acceptance in most other countries, Jerahian says. If fraud prevention is the key concern, then chip-and-signature also can be an effective deterrent, Jerahian contends.
“It’s really a two-pronged situation for making a decision, depending on what the credit union is trying to accomplish for its customers,” he says.
The Members Group helped usher in the first U.S. EMV cards in May 2010 by advising the United Nations Federal Credit Union to issue chip-and-PIN cards for its world-traveling customers, Jerahian says (
“This was a case in which Visa was telling the United Nations to go with chip-and-signature, but [the credit union] had to do what was the right thing for their clients by issuing chip-and-PIN for using the cards overseas,” Jerahian notes.
Europe initially developed EMV cards because of the continent’s relatively poor telecommunication systems and because businesses were establishing unmanned terminals or kiosks. This made it difficult for consumers to initiate transactions with traditional mag-stripe cards and issuers to authorize them, the report states.
Offline chip-and-PIN, where terminals authenticate cards through the PINs in their chips and settle transactions later, became the logical answer for Europe mostly because unmanned payment terminals were common on rail lines and other transportation businesses, the report notes. Moreover, merchants and payments industry experts began to realize the EMV cards also were far more secure, especially when requiring a PIN.
Until recently the demand for EMV cards in the U.S. was low because the country’s telecommunication system is more advanced and could provide immediate issuer authorizations for nearly all mag-stripe transactions, the report adds. However, the demand for EMV technology has grown as hacking attacks have become more sophisticated.
Indeed, merchants and payments industry analysts began pointing out two years ago that fraud incidents were on the rise because of the nation’s lack of EMV technology (
Jerahian contends the card networks haven’t helped minimize the debate with clear directives. “They are all dipping their toes in to feel the water, and no one wants to make a really bold move” to create one specific standard, he adds.
The report outlines Visa Inc.’s April 1, 2013, deadline for processors to support chip transactions (
MasterCard Worldwide has implied a preference for chip-and-PIN while providing issuers and merchants the flexibility to decide whether chip-and-signature works better for their customers (
Discover Financial has taken a more universal approach in accepting all forms of payments, the report surmises (
The debate increased in intensity when JPMorgan Chase & Co. and U.S. Bancorp announced plans for issuing chip-and-signature cards, while others, such as Bank America Corp., Citigroup Inc. and Wells Fargo & Co. opted for chip-and-PIN, the report notes.
Costs of issuing, authorizing and processing when using the chip technologies also comes into play, Jerahian suggests.
“Visa knows that chip-and-PIN is more expensive because there is more technology and more IT resources needed to process that payment,” he notes.
Meanwhile, merchant groups have continued to push for chip-and-PIN technology because of the enhanced security (
“The U.S. payments industry always thinks differently than other countries about new technology it seems,” Jerahian says. “With EMV technology, it boils down to, do we agree with the rest of the world on this?”
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