The Europay, MasterCard, Visa chip card is finally coming to the United States. Its arrival represents a historic progression for the U.S. payments industry, as it will end a long reliance on the outdated, easy-to-counterfeit magnetic stripe technology.
EMV’s global standard will create the basis for a common payments language where merchants, financial institutions and processors can operate together using a single encryption lexicon. Chip-based payment cards significantly reduce the risk of counterfeit card use at the point of sale. Used nearly everywhere but here, the technology has effectively decreased counterfeit card fraud in other places in the world. For example, in August, the European Central Bank found that 78 percent of counterfeit card fraud occurs in countries where EMV adoption lags that of Europe. EMV’s U.S. debut will improve the experience of international travelers and increase the security of digital payments.
From our knowledge of the industry, we feel confident that credit unions will add EMV to their credit portfolios within the next two years. We are concerned, however, that the path to bringing chip technology to debit is littered with many obstacles yet to be resolved.
The first obstacle on EMV’s path to adoption in the debit world is forging an agreement about a common application identifier that would enable all chip debit cards to meet Durbin’s routing rules. Today, mag-stripe cards work easily with the rule’s routing requirements (two unaffiliated networks). In contrast, Visa and MasterCard own the core EMV technology. The national networks have aligned and offered to share the application identifier.
But many of the debit networks, led by the Secure Remote Payment Council, have sought a different path, using the Discover Card’s AID. In July, the path appeared to be clearing when SRPc proposed a compromise that would provide for joint ownership and management of four AIDs and applications. Such an arrangement would permit all four AIDs to be resident on all terminals, and issuers to select the one AID of those four that will be used with their cards.