Diebold EMV forum takes stock of progress on conversion

PARIS -- Computer chip-equipped bank cards were developed in France in the late 1970s and have been in use here for electronic payments since 1992 and cash withdrawals since 1998.

As rapidly accelerating card fraud spurs migration from the magnetic stripe to the chip elsewhere, payment system organizations and banks have naturally looked to the French example. So it was fitting that Diebold Inc., the world's second-largest ATM manufacturer, and EMVCo, LLC, chose Paris as the venue for its Sept. 10 forum assessing European progress in implementing EMV specifications.

Europay International, MasterCard International (those two firms merged to form Mastercard Europe in early 2002) and Visa International set up EMVCo in February 1999 to establish and manage the specifications, aimed at assuring worldwide interoperability between bank cards and terminals.

With representatives from banks throughout Europe packing the conference room at the Charles de Gaulle airport's Sheraton Hotel, the varied accents of the presenters' English and the many languages heard during coffee breaks illustrated the linguistic, if not logistic, complexity of moving so many disparate nations and banks to EMV.

Though the momentum to conversion is by all accounts inexorable, the warning tone used by several speakers in stressing the Jan. 1, 2005, deadline -- after which banks that have not converted to EMV become liable for fraud losses -- was hard to miss: clearly many banks have not yet started work.

Moderator Virgilio Zaina of Diebold noted that Western European banks had already had to update their ATMs twice in the last three years, first for Y2K, then most recently to accept the euro. EMV conversion differs in that it has a more flexible time window and generates functionality and income for institutions, he said.

"I'm worried that banks haven't seen the full business picture, the reasons to be there from an internal investment point of view, " he said.

For example, smart cards will allow banks to offer new services through ATMs, such as ticket sales or recharges for mobile phone cards. Customers will be able to change PINs offline. Indeed, the chip's processing capacity enables many secure offline transactions, reducing transaction times and telecommunication costs.

Visa breaks the conversion process into three phases: definition, during which details are finalized; implementation, when cards are issued and terminals installed; and critical mass, at which point a majority of a market's transactions are conducted by chip and banks begin to see real benefits.

In the first quarter of 2002, the UK was well into implementation, according to Nick Hunting, an executive for Visa EU. With one out of four cards carrying the chip and 350,000 ATMs and POS terminals installed, Visa processed more than 3 million chip transactions per month and EMV transactions also occurred in France, Italy, Denmark and Turkey.

By October 2002, Visa expects 11 more markets to begin implementing, including Sweden. According to Visa EU, by 2003, chip cards should outnumber magnetic stripe cards by two to one, and by 2004, nearly 90 percent of European Visa cards should carry a chip. By January 2005, all but one or two small markets should have achieved critical mass.

Alfred Poell, vice president for MasterCard Europe's Interoperabilty Services, said that by May 2002 about one third of European countries, including the UK, France and Italy, were implementing EMV. Germany, Poland and Spain are implementing EMV at individual bank levels, while countries like Ireland, Greece, Turkey and Norway still lagged in the planning stages.

By the end of 2003, all but Spain, Poland, the Netherlands and Hungary should be implementing EMV at a nationwide level, Poell said.

While banks are being encouraged by Visa and MasterCard to convert early, the main motivating factor remains security. After January 1, 2005, liability will shift.

"That's something we can predict with absolute certainty," Hunting said. MasterCard Europe plans a similar shift, after which, "The economics of our business could look very different," he said.

"Fraud is very sophisticated and organized in Europe, with losses estimated at one euro per card," Hunting said, adding that, "In some London restaurants, waiters have electronic skimmers on their belts. Your credit card details are across the Pacific before you finish your coffee. A recent raid in Taiwan netted 160,000 counterfeit cards destined for Europe."

If counterfeit losses increase at a yearly 65 percent by 2005, the cost jumps to 10 euros per card. A 101 percent jump means a 30 euros-per-card cost. "This is clearly not sustainable on a business level," Hunting said. He said the chip as used in France allows holding fraud growth forecasts to 41 percent.

As Western Europe's some 70,000 ATMs from five different manufacturers are converted to EMV, counterfeiters may shift operations to regions still relying on magnetic stripe bank cards. This in turn may pressure other regions to convert, Hunting said.