Looks like "chip and PIN" might be coming to U.S. shores after all. Frequent travelers to Europe know European retailers and banks can sometimes get a little testy about Americans trying to use their arrogant non-chip-and-PIN debit cards to make purchases and take money out at ATMs. Sometimes, retailers may even refuse to take conventional debit cards, forcing travelers to scramble for some other form of payment.
If you've never seen a chip-and-PIN debit or credit card, it looks like a conventional payment card, but with a microchip embedded inside. When you go to make a swipe-and-sign type purchase, instead of just signing a credit card slip, you have to enter your PIN on a keypad similar to debit card readers in the U.S. The technology helps prevent thieves from cloning debit and credit cards to make fraudulent debit cards.
This month, American Banker highlighted a new report from The Members Group on how card issuers are making preparations for bringing the technology, also called EMV, to the U.S.:
Research suggests most top U.S. issuers will make EMV cards available within the next several years – to select cardholders, that is. These consumers will be the international travelers looking to make transactions and ATM withdrawals outside of the U.S. Catering to this group of cardholders, which spends on average six times more than their homebound counterparts and comprises nearly 4 percent of all credit card spending, makes sense for issuers – particularly those still reeling from the profit-shrinking effects of the Credit CARD Act of 2009.
I think that approach makes sense. Rather than pushing chip- and PIN on everyone at once and raising fees on everyone to cover the costs, which are considerable (a chip-and-PIN card costs many times more to issue than a standard debit card), try them out with frequent travelers and see how it goes. I'd bet those who get the new cards will need to make a certain number of purchases or have a high minimum account balance, but if they're frequent international travelers, they probably won't have a problem meeting those thresholds.
But big American retailers are apparently betting chip and PIN will be more than a niche market:
Major domestic retailers have also taken steps to prepare for what company executives seem to believe is an eventual mainstream adoption of EMV cards. Walmart, alongside others like Home Depot, has been open about its intent to ready its domestic outlets for EMV transactions.
Announcing that its stores already have the necessary hardware, Walmart told attendees of a recent NACHA convention that it expects to accept at least one EMV card by the end of 2010.
This is puzzling to me. I wrote an article on chip and PIN earlier this year and was fortunate enough to be able to interview Frank Abignale, who wrote the famous autobiography "Catch Me if You Can." He was doubtful chip and PIN would catch on in the U.S., because the cost of the chip and PIN hardware would likely outweigh the benefit of reduced fraud for American retailers.
Add to that the fact that the system, and its effectiveness in preventing fraud, are very controversial in the U.K. and other markets where it's been adopted, and I figured American retailers and banks would leave well enough alone. I'm still a little skeptical -- Walmart and Home Depot have a lot of power in the marketplace, but I doubt American banks are going to be willing to foot the bill for issuing these things en masse, especially since they're already being squeezed by a wave of new federal regulation.
Unless of course, banks and retailers are going to use chip and PIN as an excuse for foisting more of the risk of fraud losses onto customers, as they did in the U.K.
What do you think? Would you want a chip and PIN card to prevent fraud, even if it meant you had to pay extra account maintenance fees to your bank to get one?