Filed Under: Money, Payment systems

It's a card Jim, but not as we know it

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[Dave Birch] The issue about EMV migration continues to attract attention and discussion as the US and EU become two regions divided by a common standard, as one might say. The problems with using US-issued magnetic stripe cards (dynamic or otherwise) elsewhere are becoming more common and more serious. Take this representative tale of woe from Business Week, concerning an American stuck in Europe following volcanic misbehaviour in the North Atlantic.

Burke stood in line for more than seven hours at an Amsterdam train station in April as he sought passage to Belgium. He watched European travelers, also grounded by the eruption, buy tickets at automated kiosks that accepted microchip-embedded credit cards. Burke’s Bank of America (BAC)-issued Visa (V) card, with the standard magnetic stripe on the back, was useless. When the 64-year-old retired economist from Bandon, Ore., returned home, he called Bank of America to ask whether he could get a chip card. The answer disappointed him: “They have basically said, ‘Sorry, but you’re out of luck.’ “

[From Why U.S. Credit Cards May Not Work Abroad – BusinessWeek]

How they resisted the temptation to say “it’s card Jim, but not as we know it” I’ll never know. But there’s a serious point to all this: the end of the universal acceptance. It’s always been a pretty fundamental consumer characteristic of the international card schemes that customers expect to be able to use the cards wherever they see the acceptance mark, but how much longer can this last? I mean, I know it’s my business to mess around with different, new cards (and near-cards) all the time, but I do find it slightly worrying that I can no longer tell when going to buy something whether my cards will be accepted or not. It’s worse for our American friends, because the transition to chip and PIN makes it more attractive to have unattended POS for higher-value transactions.

The problem is particularly acute at automated kiosks in Europe, such as the vending machines at regional rail stations and bicycle rental racks in Paris, parking meters in parts of London, toll roads and gas stations, all of which accept only chip-and-PIN cards. And the problem could get worse. More unattended pay stations are appearing in Europe.

[From Americans abroad run into trouble using credit cards – USATODAY.com]

I don’t know what proportion of US cardholders travel to Europe, or indeed anywhere else, but I imagine it’s quite low. So, we’re soon going to see a situation where unless US issuers provide chip and PIN cards to those cardholders, they will start to find their cards useless. At which point, they might be vulnerable to an assault from Bling or Isis or whoever.

In line with Europol’s stance on the future of the magnetic stripe and in support of the industry’s efforts to enhance the security of cards transactions by migrating from the “magnetic stripe” to “EMV chip” cards, the Eurosystem considers that, to ensure a gradual migration, from 2012 onwards, all newly issued SEPA cards should be issued, by default, as “chip-only” cards.

[From The end for the magnetic stripe on payment cards?]

Of course, the reverse will also be true. Persons such as myself who travel to the US will have to obtain magnetic stripe cards from their banks. I already have a Travelex $ Cash Passport stripe-only prepaid card that I take to the US with me, and I really wouldn’t have a problem with paying a couple of quid to my issuer to get a stripe-only limited-time card for use in the US when I travel there. I would also like the ability to limit my Barclays Visa debit card to ATM-only use in the US. I’m not alone in thinking about this sort of thing.

In the first poll 60% of the respondents felt that European EMV cards should not hold sensitive cardholder data as standard in a magnetic stripe, and in the second poll 28% indicated that they would be happy to contact their bank to activate the stripe on their card before travelling outside of Europe, 12% were happy to carry a Chip only card, and to apply for a separate stripe card should they need to travel outside Europe, and 20% were in favour of both.

[From The end for the magnetic stripe on payment cards?]

How do we balance this out? What is the appropriate strategy in the US? We might categorise the broad options as migrate to EMV (very expensive), keep stripe and issue EMV to international travellers (very inexpensive) or forget about stripe and chip and (via contactless) let them fade away as we move to NFC, mobile, biometrics and other forms of 21st-century payment (costs utterly unknown).

Let’s think about these options a little more. Why would the USA decide to move to chip and PIN? The Business Week article noted above highlights a central problem: the fraud-related business case.

U.S. banks that issue Visa and MasterCard credit cards wrote off about $900 million in fraudulent charges last year, representing less than one-tenth of 1 percent of total card spending.

[From Why U.S. Credit Cards May Not Work Abroad – BusinessWeek]

OK, so there’s not much of a business case based on fraud in an online environment. But here is, I think, the nub of the problem.

The issuers are also reluctant because EMV may soon be leapfrogged by other technologies.

[From Why U.S. Credit Cards May Not Work Abroad – BusinessWeek]

This is a really good point, but I can see a way forward: suppose that the transition to EMV in the US becomes the transition to contactless? Suppose over the course of, say, five years all of the US POS terminals are upgraded to have contactless, at which point the stripe is turned off? That way, the switch to EMV becomes a switch to convenience and functionality. Pipe dream? Well, maybe, but it only takes one big, influential US card issuer with a few million cards out there to decide to switch to contactless EMV and things might change quite quickly. Oh, wait…

Agency wants EMV-compliant prepaid solution… The U.S. Department of Defense is requesting information on adding payment capabilities to the Common Access Card, according to documents released by the agency.

[From SecureIDNews | Defense Department seeking info on adding payments to CAC]

If the DoD go ahead and procure millions CAC cards with an EMV prepaid application on board, together with a few hundred thousand terminals for military bases, I wonder if that might shift the economics in the US? Add Walmart’s plea for EMV to a DoD procurement and we may yet see EMV under the cloak of contactless sneak into the land of the fee and the home of the stripe.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

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