Further Commentary on Chip-and-PIN Challenges for US Travelers, Issuers, and Card Networks

by guest on August 13, 2009

in Card Issuers, Card Networks, Jacqueline Chilton

Post image for Further Commentary on Chip-and-PIN Challenges for US Travelers, Issuers, and Card Networks

On the heels of our own Payments Views post The End of Cards as We Knew Them? have come interesting comments on the acceptance challenges facing US consumers using magnetic stripe cards overseas.

Listen to Guest Daniel Ray, editor-in-chief of creditcards.com on WNYC’s “411″ program (starts just after 1:00 minute) and read the recent article by Beverly Harzog U.S. Magnetic Stripe Credit Cards on Brink of Extinction? citing European Payments Council (EPC) discussion of ending magnetic stripe card acceptance over the next few years.

This is a real challenge for US Issuers who cannot justify the costs of implementing Chip-and-PIN with off-setting fraud reduction (even in the UK the fraudsters seem to have merely changed tactics rather than going away) and merchants who are not planning change to Chip-and-PIN at the point of sale.

Issuers need to start considering potential lost revenue, currency exchange, and movement of the card to the bottom of the wallet and the card networks need to evaluate the impact on their Brand assets.

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{ 13 comments… read them below or add one }

Marite Ferrero August 14, 2009 at 12:19 am

European Payments Council cannot mandate such a thing and ending the magnetic stripe would be a mistake as consumers will turn to cash. How would european cardholders be able to use their cards in the US for example if cards are without the mag-stripe? Even ATM machines in Europe require the mag-stripe!

Some issuing banks in certain countries in Europe concerned with the weakness of the static pin-code have implemented chip and signature, and not chip and pin. Another way to implement chip is to authenticate them with dynamic (one-time use) pin-codes.

What is also a myth is that U.S. has a higher card fraud rate. “David Robertson, publisher of The Nilson Report, a trade newsletter that tracks the payment industry, estimates that $1.24 billion was lost to fraud in 2007 in the United States, up from $1.14 billion in 2006. But in both years, that works out to just 5.7 cents for every $100 that customers charged on their credit cards.” Card Fraud in the U.S. = 0.057% of transactions, by value. According to APACS, for UK : “fraudulent transactions make up 0.12% of all transactions, by value”.

What this means is that fraud is very much related to the manner in which cards are used. U.S. is predominantly signature-based. Card skimming is profitable if the pin-code is captured. Fraudsters know that using a cloned card without a pin-code is high-risk since card needs to look authentic and merchants can always ask for a corresponding ID. Thus, U.S. card fraud rate is lower than that of a chip and pin country such as the U.K.

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Cosmo Larkin August 14, 2009 at 3:50 am

> How would european cardholders be able to use their cards in the US for example if cards are without the mag-stripe? Even ATM machines in Europe require the mag-stripe!

Firstly the majority of European cardholders only use their cards in Europe. So 90% or so of cards can be issued without magstripe. Magstripe cards would be issued only on request for those that travel to countries still using this arcane technology.

Many ATMs in Europe have been converted to Chip and all will have been converted by the time the EPC mandate comes into effect.

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Marite Ferrero August 17, 2009 at 3:58 am

Need to correct you there, Cosmo Larkin.

ATMs in Europe (yes, also the EMV compliant), always check that there is a valid magnetic stripe prior to even processing a chip and pin card. If you are in Europe and you have a chip and pin, try zapping your mag-stripe and you will be surprised that you will no longer be able to withdraw money with your chip and pin card.

Signature-based card transactions, arcane as you describe them actually results to less fraud than chip and static pin-code. The weakness in the chip and pin, of course is the static pin-code. I’ve always suggested changing the static pin-code to one-time use pin-codes.

Magstripe issued only upon request? How inconvenient for consumers. Also issuance of another card is an added expense for card issuers. And what good would this do? Hypothetically, once the mag-stripe card is issued and used outside of Europe, then this card would be as susceptible as American mag-stripe cards used in Europe.

European banks can consider issuing “national-only” or “european-only” cards. Afterall, wouldn’t getting rid of the magnetic stripe equate to the same thing? But why aren’t they doing this? In the past, French banks issued ‘national’ cards but stopped issuing them since a majority of french cardholders preferred international cards, although they paid more for int’l cards and although 65%+ of french cardholders never travel out of france within a 12 month period. One other drawback to this is that european banks will have to consider lowering their card fees for such limited-use cards.

Therefore, why not consider a system that enables the cardholder to turn on and turn off his card account? With such a system, the cardholder can turn off his card account against any ‘foreign’ transaction while he is in his home country and turn it on before travelling. With such a system, the cardholder can also turn off his card account against any ‘internet’ transaction and turn it on before doing an online card payment. This patented system has been in existence since 2000. I do think that if consumers find out that such a system exists, that they might just ask their banks to implement and offer it. It’s particularly useful to cardholders for their debit and prepaid cards. There is a different mindset for credit cards, as the money lost belong to the banks and not the consumers.

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Ketharaman Swaminathan August 14, 2009 at 2:41 am

As I’d written to Daniel Ray, editor-in-chief of creditcardsdotcom, I’m sure Mr. Mark Bowerman means well when he says that all chip-and-PIN card readers in Europe/ UK must have the capability of processing magnetic stripe cards. However, the situation on the ground is quite different. Over two years ago, I remember reading reports of the national railways in one of the Scandinavian countries refusing magstripe credit cards for purchase of tickets. And, more recently, during my stay in London until the middle of last year, I have personally faced this refusal in most mom-and-pop stores in the UK.

I’m not sure how far we can get by following Mr. Bowerman’s advice to “speak to the manager” – in the the former situation, it’s not easy to figure out and speak to a “manager” in a large company like the national railway of a country; in the latter case, the checkout counter attendant who refuses the magstripe card is the manager and the owner of the mom-and-pop store! Besides, at the hundreds of un-attended point of sale machines (e.g. parking meters) in Europe, there is no manager / attendant to speak to!!

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Marite Ferrero October 29, 2009 at 4:06 am

As an american living in France, I can report to you that Electron VISA cards issued in Europe, with chip and pin, are also refused in most gasoline unattended terminals and other unattended terminals.

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Marite Ferrero August 14, 2009 at 3:23 am

Regarding the refusal of magstripe credit cards :

The interchange fees for non-european credit cards are usually a lot higher than the predominantly issued debit cards in europe. A credit card charge for a small amount would cost the merchant much more than when it accepts EMV (predominantly debit) cards. I’m certain that this is one reason why european merchants (such as the mom-and-pop stores, train ticketing stations) do not accept non-european credit cards.

I’m an american but have been living in France since 2000. The best is to use the credit card to withdraw money in ATMs that you can find in airports, use the cash to buy the train tickets or to pay for small-ticket items.

In France, for example, merchants usually require the ticket invoice to be more than 10 euros prior to accepting a card payment (regardless of the card being issued in France, Europe or outside of Europe).

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EPK August 14, 2009 at 11:34 am

Prior to the early-2000s, I would’ve stated the US ruled in regards to credit-cards. Living and working in the UK for quite a few years, though, I can honestly state that the US lags far behind the rest of the world in terms of credit-card usage (let alone technology). My UK CC and Debit card were both chip-n-pin. Best thing I’ve found since sliced bread. Of course, I still used my US-based Amex but VS & MC weren’t accepted much at all. For my AX CC, not many problems with vendors even though I had to sign. Across the UK and most of Europe, the One-Card was chip-n-pin based. Why the US is so retentive about CnP is beyond me.

We’re just talking about one aspect, though. Take into account other areas, e.g., the Going Green initiatives. CnP is simple, protective, fast, and non-polluting. US-based system is wasteful. After we sign 1-2 pieces of paper and processing is complete, what happens to the paper? Yep, into the trash or shredded. Physical trash that individuals don’t care about, however, on a large-scale, builds-up. Across the pond, the countries have their act together as far as paperless goes, especially with CCs.

As far as I’m concerned, we Americans are getting our butts kicked, and I can say this from immersing myself into the overseas society and communities.

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Marite Ferrero October 29, 2009 at 4:16 am

“I can honestly state that the US lags far behind the rest of the world in terms of credit-card usage (let alone technology).”

Sorry, credit card usage in the US is still higher than in any other country. Actually, that’s also what contributed to this financial crisis. I just wanted to correct you on this.

“Why the US is so retentive about CnP is beyond me.”

The answer to this is that there is no business case in the U.S. to move to chip and pin. As I stated above, “Card Fraud in the U.S. = 0.057% of transactions, by value. According to APACS, for UK : “fraudulent transactions make up 0.12% of all transactions, by value”.

“US-based system is wasteful. After we sign 1-2 pieces of paper and processing is complete, what happens to the paper? Yep, into the trash or shredded.”

When I use my chip and pin here in France, I do notice that 2 slips are printed. One for me and one for the vendor. There’s no difference. So, what is wasteful?

“As far as I’m concerned, we Americans are getting our butts kicked, and I can say this from immersing myself into the overseas society and communities.”

May I suggest that you follow the C and P issue in the U.S. before arriving to such a conclusion.

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Jon Marler August 15, 2009 at 5:30 pm

Thanks for the follow-up! I’m a bit disappointed to hear that the contact-less cards won’t be accepted either though.

I have to agree with other commenters as well. Regardless of what is possible, or “should happen” the reality is often such that many merchants just won’t take mag-stripe cards. I typically just use cash, or avoid smaller shops that don’t typically cater to tourists and travelers. I never have any problems on high street.

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Marite Ferrero October 29, 2009 at 4:21 am

I have also a noticed a difference in card usage habits. In the U.S., it’s not unheard of to charge a $1.00 purchase.

In europe, most vendors just would not accept a card, regardless of whether it has a chip or mag-stripe, as long as it’s not over a certain amount that they deem is acceptable for them. Of course, this, americans would not know. Most times, when the vendor deems the amount to small, he/she pretends not to be able to take the card saying that their machine does not work.

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Dennis August 19, 2009 at 2:11 pm

This is all fine and dandy, but what does an American have as an option when traveling to Europe? As others mentioned, there are times when speaking to a manger is not a viable solution – especially if you don’t speak his/her language. Also, many of the kiosks in train/metro stations only take the chipped cards. It would be so much more convenient to have one of these at least for traveling.

I’ve looked far and wide for a solution to getting at least a temp Chip and Pin card for my travels, to no avail. Can anyone offer up any new leads on this? None of the international banks I’ve tried want to offer up CaP cards to their American customers.

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foleydog September 14, 2009 at 10:40 am

I just came back from the UK a few days ago. And after three weeks, I can safely say this is a huge issue. There were two B&Bs that weren’t equipped to take swipe cards. Additionally, the last B&B owner told me that when her swipe terminal became obsolete, her merchant bank informed her they would only replace it with one that accepted chip and pin. My solution over the last two years in Portugal, the Netherlands, France, and the UK has been to carry more cash. Ironically, banks have pushed themselves to the bottom of the line for these kinds of transactions. And while most Americans don’t travel abroad often – there has to be a significant market for them to forego – no?

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Tom November 17, 2009 at 10:48 am

I spent two weeks in the UK in September 2009 and had no problems with either my Mastercard (Capital One) or my Amex. Occasionally, a waiter would say, “Oh, that’s one of those. You’ll have to sign.” I spent several days in London and then in remote parts of Yorkshire with no problems in either area. I will be in Paris later this month — I have been told that the French (quelle surprise) are less amenable.

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