The U.S. payments industry is probably the most advanced on the planet when you consider the size of the market, card penetration, the extent of innovation and many other factors. Yet, one development where the U.S. has been seemingly lagging is in the technology required to authenticate credit and debit card transactions. In an effort to reduce card fraud, more than 50 countries have now migrated to EMV enabled cards (named after the developers Europay, MasterCard and Visa) incorporating smart chip technology. In comparison, the U.S. payments industry still relies on the magnetic stripe, invented by IBM back in 1960, to authenticate payments.
The reality is that EMV didn’t catch on in the U.S. because there wasn’t the same need to address fraud as there was in other countries. Factor in the huge cost of changing card terminals at millions of merchants and there has been little justification to make the switch. However, recently, both Visa and MasterCard have outlined their plans to implement EMV enabled terminals by April, 2013. The initiative is being motivated by a desire to usher in the age of mobile payments by equipping merchants with terminals that can accommodate both EMV and NFC (Near Field Communications). NFC facilitates payment at the point-of-sale with a smartphone and is the platform used by two of the leading innovators in mobile payments – Google Wallet and Isis.
One of the first countries to adopt EMV was the United Kingdom – my homeland – which embraced a system branded as “Chip and PIN” back in 2004. As a frequent visitor to the U.K., I have experienced firsthand the blank stares of waiters and sales assistants as I have handed over my U.S. credit card and explained that “I need to swipe” backed up with “I don’t have a PIN” (the machines that accept chip cards can also accept a mag stripe). Usually we get through it, eventually, although occasionally a similarly bemused manager has to be called and the additional delay and uncertainty can be frustrating. The issue will only get worse for travelers given that, in just 4 years, anyone in the U.K. below the age of 30 is unlikely to have any concept of signing a credit card receipt unless they have been specifically trained in how to handle visitors from America.
Recently there has been some movement toward EMV here in the U.S. specifically for cards targeted at international travelers. A handful of issuers now offer EMV enabled cards including Chase and U.S. Bank. As an existing Chase British Airways Visa Signature cardholder I recently received my replacement card with “smart chip technology.” A customer communication followed, encouraging me to “shop like a local everywhere” and explaining that the chip will “avoid inconveniences at the point of purchase when traveling abroad.” To add a little urgency to the situation the communication provided an interesting fact posed as a question: “Did you know that chip cards are required at unattended kiosks on the London Underground?” Next to this question a phone number was provided in case I wanted them to “rush” one to me “for no additional charge.”
U.S. Bank has been communicating to its FlexPerks Travel Rewards Visa Signature cardholders promoting the card as “one of the first ‘smart cards’ in the U.S. that features a traditional magnetic stripe and EMV technology.” The communication highlighted the fact that Forbes recently named the card to its list of “10 Financial Innovations That Make Your Life Easier in 2012” siting “smarter travel-friendly spending.” (Source: Comperemedia)
U.S. card issuers can learn from the experience of their neighbors north of the border when it comes to EMV cardholder communications. Canada began migrating to EMV in 2008 and there is still work to do. Canadian banks continue to educate their customers through statement inserts and other cardholder communications suggesting that it is an on-going effort. RBC mailed customers in May setting expectations that “for several years to come you will experience two types of transactions” and to reassure them that transactions are “just as secure as ever.” The bank also provided a step-by-step guide to using the card. (Source: Comperemedia)
It seems that cards with smart chips are finally on their way to the U.S. International travelers will understand the benefits, but the bulk of consumers will need to be convinced through on-going communication. The U.S. payments industry is gearing up to accommodate multiple transaction methods as it begins the migration towards mobile payments.