Friday, July 26, 2013
Auriemma said the U.S. migration to EMV is proceeding sluggishly because, among its shortcomings, the movement lacks unity, with too many stakeholders going in different directions. For example, U.S. financial institutions are hindering the migration by planning to issue EMV chip and signature cards instead of the more secure chip and PIN cards, according to Stuart Sykes, Operations Director of ACG in London.
"To this day, I have not heard a case for chip and signature that has made any sense," Sykes said. In his discussions with U.S. senior bank executives, Sykes claims to have not heard a reasonable explanation why they prefer chip and signature over chip and PIN. Sykes said bankers' usual answer is that chip and signature cards will be cheaper for banks to issue. But Sykes does not consider that answer to be justifiable, as chip and PIN will save banks more in the long run from cost savings due to lower fraud rates.
Other savings will accrue from lower card production and delivery costs, Sykes added. "Chip and PIN cards don't damage as much as magstripe cards," he said. "I've had chip and PIN cards in my wallet since 2008 when we went fully chip and PIN and never had to replace them because they've worn out… So you're saving massive costs in plastic renewal, saving massive costs in the delivery of plastics."
Sykes said the industry will not be able to meet the timelines set by the card brands for EMV rollout if most issuers choose the chip and signature path. If only a third of issuers deploy chip and PIN, the liability shift deadlines (when the card brands shift liability for card fraud to merchants) will be ineffective. "You can't have a liability shift," Sykes noted. "It's not going to work. You all need to go down a singular route."
In contrast, Sykes said the Association for Payment Clearing Services, which led the EMV transition in the U.K. and the EU, convinced issuers and the other stakeholders that chip and PIN was the better solution. Large U.K. merchants like Tesco PLC and Wal-Mart Stores Inc. (branded Asda in the U.K.) were on board with chip and PIN because they realized they would enjoy "a massive cost savings" in significantly lower offline fraud incidents, Sykes stated.
Sykes believes that same level of cooperation is not evident in the U.S. migration effort because no one entity is steering the transition. The card brands – Visa Inc., MasterCard Worldwide, American Express Co. and Discover Financial Services – have instituted different liability shift deadlines. The EMV Migration Forum has provided leadership, but Sykes questions if it has done enough. "This is where the problem is," he said. "Nobody is saying, 'Actually, yes, we're going to chip and PIN. We're going to a liability shift at this date. That's it.'"
Sykes recognizes that the U.S. market is more complex and diverse than either the U.K. or EU markets, and that complexity is one reason U.S. EMV migration has been slow. Also complicating matters is the two-network debit routing mandate imposed on the industry by the Durbin Amendment to the Dodd-Frank Act of 2010. "It's putting the progress back, without a doubt," Sykes said.
He praised Discover for proactively offering to license its debit application identifier (AID) technology, called D-Payment Application Specification (D-PAS), which can facilitate the routing of transactions initiated at in-store POS systems. Ten independent debit network operators have already adopted D-PAS as the AID solution to the Durbin Amendment routing rule. "Let's do something for our customers and that's what [Discover has] done," Sykes said. "And that's why they're going to be ahead of the game in the U.S. market."
But Sykes is not as effusive about the leadership of the other card brands concerning EMV migration. "MasterCard has a couple of ideas – not quite there yet," he said.
Sykes also questions whether the U.S. payments industry realizes its slowness in making the EMV transition is negatively impacting the global market. He stated that 75 percent of EU card fraud originates from stolen card account numbers imprinted on counterfeit magstripe cards that are used at U.S. retailers.
If the United States moved quickly to chip and PIN technology, which is considered more secure than magstripe technology, then card fraud in other parts of the world would be significantly reduced. "The U.S. has probably been, as big as it is, the only one that is not in the chip and PIN world, and it is affecting the rest of the world," Sykes said.
Sykes said the EMV migration initiated by the U.K. and EU countries in 2008 took two-and-half years to complete. For the U.S. market, the card brands have given final liability shift deadlines of fourth quarter 2016, but Sykes believes a 2017 deadline is more realistic if the industry acts now. "There are only so many chips that can be made per day and only so many engineers to replace old machines, so I do think it will be a 4-year change over," he said. 
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