The U.S. Payment System’s Single Point Of Failure

By Pete Rizzo (@pete_rizzo_)

Europay, MasterCard, Visa (EMV) chip technology has proven to be a viable security solution to the problems posed by fraud. Six years after its implementation in Europe, EMV has driven down the level of card fraud, decreased the total value of card fraud and pushed fraudsters to attack less secure countries internationally.

In the U.S., the picture is polar opposite. Since 2004, data from Accenture has found that bank card fraud rates have increased by 70 percent. A newly released white paper from digital security solutions provider Gemalto supports this conclusion, revealing that physical card fraud in the U.S. is already above the global average – and rising.

Still, the situation hasn’t yet reached a code red. According to Gemalto, there is one factor that is ensuring the U.S. won’t become the primary target of fraudsters, and that fraud rates won’t continue to rise: The efforts of major U.S. issuers like Visa, American Express, MasterCard and Discover, all of which have supported EMV migration through accelerated adoption policies.

How are these policies working today, and what X factors could prolong the life of costly magnetic-stripe cards? We dissect Gemalto’s “EMV Implementation in the U.S.” to learn more.

The U.S. EMV Migration So Far

In October, 2012, Visa issued its roadmap to EMV by announcing that it would eliminate its requirement that merchants annually validate their compliance with PCI data security standards (DSS), provided 75 percent of the merchant’s transactions originated from EMV terminals.

While Gemalto contends that Visa set the tone for other issuers to follow, the effects of this move have yet to fully take hold in the U.S. For example, American Express will begin granting PCI audits to merchants this October. Likewise, Visa set its liability shift for 2015, and while Discover followed suit, MasterCard will not institute its liability shift until the following year.

Shortly after the announcement, however, the white paper indicates that one group of U.S. consumers began benefitting from EMV chip technology: travelers. The white paper illustrates that this was essential given the steep rise in EMV card and EMV terminal adoption around the world, as well as the numerous payment problems being reported by U.S travelers.

Removing EMV Pain Points

One factor on the issuers’ side is that Gemalto noted that the cost of EMV chip cards has “decreased considerably” over the last few years. The researchers named growing card production capacities, decreasing prices of the integrated circuit chips and maturing card manufacturing technology as factors that are benefitting the EMV migration.

Gemalto said that the cost of payment and POS devices is down significantly, and noted that since most big issuers are now operating in EMV territory, many have modified their international issuing and back-end systems to integrate EMV.

Potential Roadblocks To EMV Roadmaps

The white paper indicated that the EMV roadmaps laid out by major issuers, while still in their early stages, have been “positive for the U.S.” However, it also asserted that there is more major U.S. issuers could do so that acquirers, merchants and ATM providers can move toward EMV adoption together.

The report cited the migration of ATMs to integrate with EMV cards and devices as the potentially linchpin to U.S. EMV migration.

“If ATMs are not made EMV compliant in sync with the POS devices, the life of the magnetic stripe technology will be prolonged and ATMs become the single point of failure [or fraud for that matter] in the card payment system,” the report authors wrote.

How do fraud migration problems around the world lend support to this prediction? For this answer, as well as more insight into how contactless and mobile payments will play a role in the EMV transition, download “EMV Implementation in the U.S.” here.