The chips are down – EMV in the US not going well

Written by on September 16, 2016 in Guest Blog with 0 Comments

Close Up bank card chipI’ve been reading a lot of comment about the US EMV migration recently and there seems to be pretty universal condemnation of the process (some of it from me). In the UK, we had chip and PIN day (St.Valentine’s Day 2006) and that, pretty much, was that. But in the US, the migration has been piecemeal, confusing and fraught with problems. But why?

Critics have told me that banks opted for a signature versus a PIN code because it saves them large amounts of money by not having to store PIN codes for everyone. Banks, on the other hand, say they feared that their customers would have a difficult time remembering a four digit code.

From The EMV chip credit card transition in the US has been a disaster — Quartz

As far as I know, neither of these is true. Some issuers preferred chip and signature because it has higher interchange, not because US consumers are morons who uniquely amongst the nations of the Earth cannot remember a four digit personal identification number (PIN) that they use several times every day. Merchants wanted PIN because the fraud rate on PIN is two orders of magnitude less than with signature. Consumers wanted speed and, since they were given that by the no-signature online-authorised stripe transactions that they were familiar with, there was no traction for contactless (which delivers speed and convenience in an EMV environment and provides fertile ground for mobile payments).

The typical US consumer approaches a POS with some trepidation, I imagine, since it is completely opaque as to the experience that awaits them. Tap, swipe, dip, PIN or sign, hand over the card or keep it… every transaction is an adventure. I suppose many stakeholders take the position that it doesn’t really matter because mobile and in-app are going to steadily erode card transactions (Jupiter is reporting that almost half of US consumers already use some form of contactless payment, and a fifth already use it every day – mostly Starbucks I’d imagine). At some point in the imaginable future, “tap and pay” and “app and pay” will together exceed both EMV and magnetic stripe transactions at retail point of sale (POS) and at this point (the plastic singularity or, as I prefer it, #cardmaggedon or the #cardocalypse) signature versus PIN will seem to our children something of a medieval argument along the lines of angels on the head of a PIN. Right now, though, it is still a live debate.

My own decidedly unscientific survey involved a shopping spree one recent morning to no fewer than seven different retail locations, which revealed exactly seven different chip-capable payment terminals instructing customers to “Please Swipe Card.”

From The Great EMV Fake-Out: No Chip For You! — Krebs on Security

However, until such time, we should probably make an effort to improve the user experience (UX) for the typical consumer and make cards work better for the merchants. As I recall from the excellent NYPAY discussion on the topic, US merchants are particularly aggrieved by the rise in chargebacks that they have seen over the past few months.

Chargebacks for card-present transactions increased 50% following the Oct. 1 EMV liability shift,

From EMV Chargebacks Proving To Be a Card-Present Merchant Problem

You understand why this, I’m sure. It’s because before 1st October, if you spotted a $3.95 charge at Starbucks on your statement and you knew that you couldn’t possibly have made that transaction, then you would call up your issuer and complain and they would just eat the charge because it would have been more trouble than it’s worth to go back to Starbucks, pull the receipt, check the signature if there was one etc etc. However, after 1st October, if you spot a bogus $3.95 charge on your account and call up, the issuer will check the transaction codes and, if you had a chip card but it was swiped by a merchant who didn’t have (or didn’t use) a chip reader, then the $3.95 is charged back to the merchant. The net result is — entirely as expected and as it should be — that merchants see big increases in card-present chargebacks as previously hidden magnetic stripe fraud is revealed.

A good way to reduce that previously hidden fraud would be to simply give customers the option to block magnetic stripe transactions from cards with a chip on them. Why are the banks not giving consumers the option to disable stripe transactions? My debit card has embossing and a magnetic stripe on it for absolutely no reason that I can fathom since I never use it a non-chip ATM and in practice I don’t need it when abroad. I’ve just returned from trips to Rome and Munich where I never once used cash and never needed an ATM (I used my Caxton FX pre-paid card in shops and ticket machines and I used Uber for transport).

 

I want my bank to auto-decline any magnetic stripe transaction made using my chip-enabled contactless debit card and I want the ability to set that parameter from my excellent mobile banking app. Why is this so difficult? Meanwhile, back in the US, the mounting annoyance with chip and PIN continues. Perhaps it’s time for the networks to announce the sunset date for magnetic stripes: perhaps 1st January 2019, after which time no new cards will be issued with magnetic stripes or embossing?

This article was first published on Tomorrow’s Transactions.

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About the Author

About the Author: Dave is Director of Consult Hyperion, the secure electronic transactions consultancy and is an internationally-recognised thought leader in digital identity and digital money. Named in Wired magazine’s global top 15 favourite sources of business information; rated one of the NextBank “Fintech Titans”; voted one of the European “Power 50” people in digital financial services and ranked Europe’s most influential commentator on emerging payments. .

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