I Want My EMV! (?)

by. Henry Meier

The vast majority of the banking world including Europe has now shifted to using credit cards which encode data in computer chips as opposed to magnetic strips.  This technology is called EMV (Europay, MasterCard and VISA).  The results are impressive.  A recent report by a banking security agency for the European Union reported a nearly 6% drop in card-related theft.  Furthermore, the report noted that the adoption of chip technology has only increased the attraction of the U.S. market to data thieves.  They aren’t stupid and when the largest credit market in the world uses outdated technology to protect against fraud you know where they are going to set their sights.

But the attraction of this technology goes far beyond its ability to deter data theft.  We are all hearing correctly that smart phone technology is here to stay.  The use of the EMV-chips helps facilitate smart phone transactions.  The same technology that allows someone to waive their cellphone instead of insert their debit card to pay for a transaction is facilitated by EMV-chips.  Furthermore, EMV has become the international norm.  Financial institutions are beginning to hear complaints from customers traveling overseas that their credit cards aren’t being processed properly.  It is no coincidence that the United Nations Federal Credit Union is among the largest proponents of this technology.  It makes sense to do what the rest of the world is doing.  Most importantly, by 2015 both VISA and MasterCard will begin shifting liability from acquiring banks to merchants who don’t adopt EMV-equipped Point-Of-Sale terminals.  However, the first implementation deadline set by VISA and MasterCard requiring acquirers and processors to have integrated EMV technology by April 2013 has come and gone and obviously much more needs to be done.

So, why hasn’t EMV taken off in America and can more be done to facilitate the transfer?  The answer to the first question lies in a classic economic conundrum.  For chip-based technology to work, all those point-of-sale terminals into which your current debit and credit cards are inserted have to be retrofitted to accept it.  That’s billions of dollars to the merchants.  That’s an awfully big investment and there is no guarantee that the acquiring bank will have the technology to process the transaction.  For one thing, it is estimated that shifting to EMV technology will cost banks billions of dollars and this is before they start retrofitting ATMs for the chip cards.  In addition, EMV-based debit and credit cards cost more to make and replace.  In other words, you have a classic chicken versus egg dilemma:  no one denies that chip technology is superior to the use of magnetic strips; but given the cost of investing in the new technology, no one wants to be the one to take the first leap.

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