The world of payments is becoming divided between the “haves” and “have-nots”. Most payment schemes around the world, with the exception of the United States, use what is commonly referred to as “chip and pin” credit card transactions. Microprocessor chips are embedded in the card and used to process a transaction. Those in the US with the good fortune to travel to different countries such as the United Kingdom, Germany, France, China, or Brazil see the delineation between “haves” and “have-nots” every day. Card brands such as Visa, MasterCard, and their issuers, have adopted the use of chips in cards, which supplant the magnetic stripe.
These companies rely on a standard called “EMV”, or Europay, MasterCard, and Visa. For those with US -based cards, overseas transactions are processed with a magnetic strip. Because of the ease with which fraud is perpetrated on these cards, US citizens are charged a 10-15% tax to compensate.
Card issuers in the United States recently agreed to implement the EMV standard for cards beginning in 2014, but EMV cards have been used around the globe since 2002. So why the delay in the United States? Well, like most things, money plays a huge role in these decisions. The ubiquitous magnetic stripe is a low cost, reliable, and efficient method of processing a transaction at point of sale. However, the cost of fraud associated with using the magnetic stripe continues to climb. Global fraud is estimated to be a $6 billion a year problem. Now that most of the market is using chip and pin, this fraud is migrating to the area with the least amount of card technology: the United States market.
With this in mind, card issuers can no longer avoid the cost of implementation of a chip based card. The cost of fraud is becoming greater than the cost of new technology deployment. Much of the magnetic stripe fraud involves “skimming”, where the information on the magnetic strip is collected on a small, inexpensive swipe reader. The skimming occurs when a card is handed over to a merchant and is out of the consumer's sight for a short time. These “skimmed” numbers are collected and then sold in a robust and illegal online marketplace where they are encoded on new, fraudulent cards and used again to run up charges against your account. The tenet of global and universal acceptance is very important to brands like Visa, MasterCard and American Express. Using the most advanced technology will help to ensure this in the long term.
How will this impact consumers?
Chip and pin technology will drastically change the way in which consumers purchase goods and services. At a restaurant, for example, the server will bring a handheld reader to the table. The customer will insert their card and enter their pin number (or sign) to complete the transaction. In every instance, the consumer maintains complete control over the card and the transaction. Online fraud, or what is known as “card-not-present” fraud is also growing exponentially. These purchases, online in most cases, are processed without the presence of a physical card. Think ITunes or Amazon. The stolen numbers I referenced earlier often end up being used in an online environment. Using a pin based transaction, while not entirely foolproof, still represents an additional barrier to fraud.
Some issuers in the USA such as Chase have already begun to issue chip cards, especially for those cardholders who travel overseas. However these early cards are just chip and signature as opposed to chip and pin. Before widespread adoption happens in the USA, decisions must still be made on a variety of implementation issues including the deploying of readers at point of sale that can accommodate a chip. Until that time the magnetic stripe will continue to be the primary transaction enabler.
What are the implications then for the business ecosystem that OpSec Security participates in through its Transaction Security business?
In the short term, the card manufacturing business will see a steady and substantial rise in volume as card issuers begin to issue new chip-based cards. This will drive increased purchases of materials used to create cards such as plastic and of course the security holograms manufactured by OpSec Security and shipped across the globe to manufacturers of Visa, MasterCard , American Express, Diners Club and Discover Card. While the addition of a chip increases the transactional security the use of the hologram remains a valuable branding and security device.OpSec is the world leader in this area and we continue to innovate in design and application to meet the needs of our customers and clients today and tomorrow.