The Green Sheet 2.0 :: E-Magazine

February 11, 2008 • Issue 08:02:01

EMV and the United States

By Tracy Kitten, Editor
ATMmarketplace.com

Contactless and EMV

We see more of a push in the United States for contactless payments. MasterCard Worldwide this week announced that First Hawaiian Bank ($12.5 billion in assets) is issuing its PayPass debit card, which Giesecke & Devrient GmbH is providing.

G&D specializes in smart cards. To date, it says it has supplied more than 10 million contactless payment cards to U.S. banks, and 2008 is expected to be a year of contactless growth in the United States.

MasterCard also sees opportunity for its PayPass cards, which now total 20 million, along with 80,000 merchant acceptance locations, in 20 countries.

In 2005, the Smart Card Alliance recognized Chase Bank USA (a subsidiary of JPMorgan Chase & Co.) for its innovation in the contactless space for the issuance of its "blink" credit card. Chase was recognized because its "blink" introduction marked one of the first innovative moves in the U.S. payment card space in more than a decade.

"We expect a huge change in smart cards used in payment applications between 2004 and 2010, and that will be driven by take-up of contactless payment cards in the United States," said Karthik Nagarajan, Senior Analyst for Frost & Sullivan, in America's Smart Card Market Analysis, 2005.

or the last several months, I've been collecting and reviewing news reports about the world's migration toward EMV compliance - the smart-chip-card standard that Europay International, MasterCard Worldwide and Visa Inc. collaborated in 1999 to create.

EMV isn't new, but it continues to garner its fair share of media attention, and a number of software-testing vendors in the ATM space have taken an interest.

So, I like to keep an eye on how the migration is developing, all the while wondering if and when the United States will make a move.

Snap: If you're a retailer or banker, don't sigh. The United States doesn't appear to be making any movement, and Visa and MasterCard aren't expected to put any pressure on card issuers and retailers anytime soon.

Canada's migration to EMV has reportedly progressed smoothly.

A number of factors, including experience gained from the United Kingdom's migration and the fact that Canada has one electronic funds transfer network, Interac Association, have contributed to Canada's success, said Ian Kerr, Chief Executive of England-based Level Four Software Ltd.

Level Four is working with banks in the U.K., Canada and other parts of the world as those countries make the move to EMV.

Other companies, such as Canada-based Phoenix Interactive Design Inc. and United States-based ACI Worldwide Inc. also are working with financial institutions throughout the world to help reach EMV compliance.

And as more domestic migrations occur, they begin to move at an accelerated adoption pace, simply because the industry is learning as it moves along.

"In the U.K., the testing piece was the last thing we did," Kerr said. "We learned from that experience, and it's a lesson we've been able to use when we move toward EMV in other countries, like Canada. Now we test earlier."

In fact, Canada's success thus far bodes well for meeting the compliance deadline of 2012. Unlike the U.K., where the 2006 deadline was missed by banks and retailers alike, Canada appears to be on target.

Mexico's EMV compliance deadline was the end of 2007. I guess we'll soon hear how that country fared.

So where does that leave the United States? Well, somewhere in the middle, literally.

There's no question that fraud spurred the push for EMV adoption in countries throughout the world. Credit fraud has long been a problem in the U.K.

After the introduction of chip and PIN in 2004, the U.K. reported a 25% drop in card fraud within two years.

The replacement of the easy to copy mag stripe is to thank, according to the U.K. payments association APACS.

And while some recent industry reports have questioned how effective the smart chip will continue to be at curbing fraud, there's little question that it's more secure than the mag stripe.

The same can't be said for near field communication, on which basic contactless cards are based. Radio frequency identification (RFID), which is typically used, has been challenged by a number of industry experts who claim it can easily be intercepted.

While some argue that RFID transmissions can be encrypted like any other type of communications frequency, the mere openness of it all has left many skeptics unsatisfied that the technology is safe.

And though the technology that governs RFID and smart chips is, on a basic level, the same, the RFID chip fundamentally differs from the smart chip, which in and of itself is a mini-computer, capable of sending and receiving transmissions.

The RFID, on the other hand, is very basic and dumb, only capable of receiving messages.

So, the United States is expected to continue down its road of contactless adoption, a stage that was set a few years back when Citibank introduced its "blink" card. But the move is a curious one, to say the least.

The argument against EMV migration in the States has largely fallen on the huge investment retailers and bankers would have to make.

The costs associated with purchasing EMV-compliant POS systems and issuing EMV-compliant cards has made migration costs prohibitive, without having high card-fraud numbers nudging the initiative.

But a move to RFID contactless puts a similar financial demand on retailers and bankers. POS systems must be replaced, and cards must be reissued.

My question: Why are Visa and MasterCard allowing the United States to take a baby step when a leap makes more sense?

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