Article

Price vs. fraud prevention: Where does EMV fall?

As other parts of the world move to comply with EMV, the United States is waiting by the sidelines. Why is the United States waiting, and what will it take to nudge EMV migration along?

November 5, 2006 by Tracy Kitten — Editor, AMC

*About the author:Brendan Thorpe is account manager for Nexus Software Inc.who serves Europe, the Middle East and Africa. Nexus provides multichannel client-middleware for the financial-services delivery. To submit a comment about this article, pleasee-mail the editor.

 

 

An EMV primer …

Brendan Thorpe

 

The Europay, MasterCard, Visa (EMV) standard is a specification set by EMVCo LLC for chip-embedded cards, also known as smart cards. Chip cards are intended to replace magnetic-stripe cards.

 

EMVCo was formed in February 1999 by Europay International, MasterCard International and Visa International to manage, maintain and enhance the EMV Integrated Circuit Card Specifications for Payment Systems. EMVCo's primary objective is to manage, maintain and enhance the EMV Integrated Circuit Card Specifications by ensuring interoperability and acceptance of payment-system-integrated circuit cards on a worldwide basis.

 

 

The specifications are broken down into two main sections: One governs how the card and the card reader interact at a physical level (EMV Level 1); the other governs how the card and reader interact through software (EMV Level 2). Both areas of the standard are subject to different certifications, which have to be conducted at laboratories approved by EMVCo. (A list of the labs is available on EMVCo'sWeb site.)

 

EMV adoption: Where's the United States?

 

While EMV has been adopted by European, African, South American, Asian and Canadian financial institutions, the United States is barely catching on. Compliance with EMV standards will require upgrades to ATMs and existing applications, as well as a significant amount of technical infrastructure.

 

Many in the United States have attempted the jump to smart cards with little to no success. With widespread adoption across Europe and Canada, will the United States eventually catch up?

 

According to an article in Banking Strategies Retail Delivery Insights, "EMV ETA?" experts say widespread use of EMV-standard smart cards in the United States may be as far as a decade away.

 

American consumers' slow adoption of EMV will hinder the standard's full adoption and force merchants to continue offering both mag-stripe and chip-card options.

 

EMV = fraud prevention … and more

 

In addition to reducing fraud, financial institutions with EMV also will benefit from secured transactions and enhanced control over their issues card-bases.

 

How?

With repeated breaches in security, and the loss and theft of accountholder's personal information, fraud is a top concern for U.S. financial institutions. But it's not as big a concern as it is in other parts of the world.

• Cards can not be replicated - hence no opportunity for white-plastic fraud.
• PIN validation increases the security of the transaction and promotes confidence in the customer.
• The EMV standard contains processes by which terminals can validate cards that are genuine, further enhancing security.
• All transactions, whether online or offline, are digitally signed by the card, providing FIs with an audit trail that enables them to authenticate transactions.
• Cards can be deactivated in the field if they're lost or stolen - that is done during the first online-authorization attempt after the theft or when loss is reported.

Price factor

 

Why is the movement working so well in the rest of the world and so poorly in the United States?

Many believe the United States' reliance on checks and cash may be to blame. Consumers' reliance on the mag-stripe for cash at the ATM and cash back at the POS could be halting adoption. But what price will the United States be willing to pay for security?

 

Security is the single most important advantage to chip cards relative to the mag-stripe. In Banking Strategies' "EMV ETA?" article, the writer explains that chip cards promote card features by enabling the download of scripts and blocking future use or targeting specific customer segments for incentives.

 

According to an article on ATM Marketplace, "EMV: When will it hit the United States?" Caroline Walpole, a smart card expert in the United Kingdom and senior business consultant for Omaha, Neb.-based ACI Worldwide, says: "Many countries are saying that the only reason they have fraud is because of the magnetic-stripe."

 

Walpole goes on to say that "fraudsters now have difficulty with the cards in the United Kingdom and France. So they will just take those cards across the border where there is no EMV."

The article continued to say that Visa estimates counterfeiting can be decreased by at least 70 percent with smart cards. And a standard 64 KB smart-card chip can hold 13 times more information than a magnetic stripe.

 

While the rest of world moves toward EMV and chip cards, the use of mag-stripes cannot be discontinued until the Unites States jumps onboard.

 

As with any new technology, implementation can be difficult. In fact, experts say that a move toward total EMV conversion could be complex and take extensive planning. Additionally, EMV standards will continue to evolve and compliance will be a requirement for hardware suppliers.

 

But with the hopes of decreasing fraud, EMV is and will be worth the conversion.

 

EMV conversion will inevitably be an expense for financial institutions, but do the benefits not outweigh the price?

 

With repeated breaches in security, and the loss and theft of accountholder's personal information, fraud is a top concern for U.S. financial institutions. But it's not as big a concern as it is in other parts of the world.

 

The United States is under the comfort blanket of cash, debit and credit card transactions. Until U.S. FIs and consumers feel the impact of fraud, due to the continued use of mag-stripes, conversion to EMV likely will take a back seat.