EMV Pin and Chip Card Dilemma in the United States

Jul 07, 2014

As the October 2015 deadline looms for card issuers to deploy EMV pin and chip cards, a major United States issuer has elected not to use the traditional European chips that protects consumers from fraud. A new study by Aite Group reveals that most banks and issuers in the United States will use chip–and- signature credit cards. American financial institutions fear that consumers will be put off by having to enter a PIN on their credit cards. Banks are also leery because many are not technologically equipped to perform online chip-and-PIN credit card transactions at POS (point of sale).

“One issuer in the U.S. said the only way their processor could do EMV credit card transactions was offline PIN, so that has an additional set of overhead associated with it. So it was just a non-starter to consider PIN from their perspective,” says Julie Conroy, fraud analyst with Boston-based Aite Group.

She notes that the decision of one major card issuer not to use the traditional debit EMV pin and chip card, is a big issue for U.S. consumers and may affect how other card issuers will react to the new technological demands.

Conroy continues, “this is a very big processor, so even if it is only that one, it’s a big chunk of the market affected by that one not having the rails to handle chip-and-PIN online.”

With chip-and-PIN online, the actual PIN is not stored on the card, instead the merchant’s terminal is connected directly to the bank’s server for PIN verification and transaction authorization. Offline PINs do not have a direct connection to a bank’s server, instead the merchant’s terminal connects with the PIN stored on the card’s chip. This provides authentication on the bank’s behalf.

PIN online is preferred by countries that have already implemented EMV chip technology, because it  deters fraud via stolen or lost cards, settles transactions more quickly, and is less expensive to launch than offline PIN. To use offline PIN, card issuers must decide how PIN information is stored on the host system and card.

EMV pin and chip-and-signature and standards deter counterfeit activity because the chips manufacture on-time codes for every transaction. The options presented by the new technology has caused major US card issuers to make different choices.

“There is going to be some investment required to make this happen, and when lost and stolen fraud is only 13% of the total problem and you extend [compare] that to the issuer [technology] problem, it is drop in the bucket compared to what counterfeit fraud is,” Conroy mentions. MasterCard will utilize chip-and-PIN because of stronger security, and Visa has supported chip-and-signature technology.

Oberthur Technologies’ field marketing director, Philip Andreae, says either change will require changes to software and hardware. “The U.S. has unique challenges and somehow a solution has to be developed that can work for and be agreed upon by all 14,000 banks,”

Despite which methods issuers go forward with, most experts agree that chip-based cards are infinitely more secure than the current magnetic strip.

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