EMV switch won't eliminate travel woes
U.S. moves to signature cards, but foreign destinations use chip-and-PIN
By Tony Mecia
If you're planning an overseas trip, don't expect to have an easier time charging purchases just because your bank sent you a new card with a shiny silver chip in it.
Card issuers are racing to beat an October 2015 deadline to replace traditional magnetic stripe cards with those containing what's known as an EMV chip -- technology that creates a dynamic code for each transaction, making fraud more difficult. Banks that miss the deadline are likely to be financially responsible for fraud losses connected with old cards. And merchants who fail to upgrade their equipment by the deadline may also be liable for fraud losses.
Other countries have employed EMV cards and card readers for years, leading to occasional problems for U.S. travelers using magnetic stripe cards. While the vast majority of foreign transactions go through, travelers routinely encounter problems with unmanned machines in such places as parking garages, subway stations and tollbooths.
Those issues are likely to persist, even though 70 percent of all U.S. cards issued are expected to be EMV compatible by the end of 2015. That's because almost all U.S. issuers are switching to a standard known as "chip-and-signature," while the standard in many other countries is "chip-and-PIN."
San Francisco dentist Sam Thacher, 41, found this out the hard way in July, when he took a family trip to Europe. Driving outside Nimes, France, on a toll road, Thacher pulled up to an automated tollbooth and inserted his EMV-enabled Chase Sapphire Preferred card, but the machine rejected his card. As cars lined up behind him, he tried four other cards, all with chips, but none worked.
"We hit the button to call someone over, and it gave us an automated message in French," says Thacher, who doesn't speak French. An attendant eventually came over and accepted their payment in cash.
Because processing networks Visa, MasterCard, Discover and American Express have adopted new rules encouraging stronger anti-fraud technology, there are a number of changes underway leading up to the October 2015 deadline.
|Pining for PIN?|
About 80 countries have credit cards with EMV chips. Most require a PIN for verification, while most U.S. cards will require a signature.
Here are the predominant standards in other countries and regions:
Asia (except Japan)
United Arab Emirates
Source: "EMV: A Roadmap and Guidebook for the U.S. Market," Aite Group, June 2013.
Merchants are buying new card readers that accept EMV chip cards, although many of them are falling behind in purchasing and configuring those terminals.
Banks, too, are moving quickly to replace magnetic stripe cards with cards featuring EMV chips. They're mailing customers new cards to replace the old ones.
However, given the option of issuing chip-and-signature cards or chip-and-PIN cards, the vast majority of banks are choosing to offer EMV cards without PINs. That's an issue because cards with PINs offer another layer of security and thus are more resistant to fraud than those without.
Several major banks declined to discuss the rationale for selecting chip-and-signature over chip-and-PIN.
A Chase spokeswoman says the bank is working on implementing chip-and-PIN in the future, although she says there is no timeframe.
An American Express spokeswoman says: "The current standard practice in the U.S. is the chip and signature. We are closely monitoring the industry and if there's a broad scale change, we will re-evaluate our plans and determine how best to proceed."
The two standards for verifying transactions with EMV cards -- chip-and-PIN and chip-and-signature -- are set by the issuer of a card. When a consumer presents an EMV card to a card reader, the chip and the reader typically sync up and allow the transaction. But some card readers abroad are not configured to accept chip-and-signature cards. Even if you obtain a PIN for a chip-and-signature card (usually to be used for cash advances at ATMs), your purchase will not go through on card readers that accept only chip-and-PIN cards.
'Complexity' of a PIN
People who have studied the transition to EMV cards say the banks have sensible reasons for not moving aggressively to add chip-and-PIN cards.
Perhaps the biggest reason, they say, is because U.S. consumers are not used to keeping track of and using PINs when they pay for purchases with credit cards. Although remembering a four-digit number might not sound like a big deal, banks apparently worry that if people have some cards with PINs and some without, they are more likely to make a purchase with a no-PIN card because it is easier to use.
Banks also fear that if a cardholder forgets a PIN and is unable to complete a transaction, the card will go to the back-of-wallet, according to a June 2014 report by Aite Group, a research and advisory firm. "The potential for customer attrition outweighs the opportunity to reduce lost/stolen fraud," the report says.
"Sometimes a PIN card is not the best fit," says Steve Mathison, vice president of payment acceptance for payment processor First Data. "The issuers are making some rational choices to make sure the migration to EMV doesn't stumble by introducing a PIN."
In addition to challenges for consumers, introducing PINs "adds further complexity" and cost for card issuers, who would have to issue PINs for existing cards and create a process for customers to change them, says Randy Vanderhoof, director of the EMV Migration Forum, an industry group.
"The consumer who uses credit cards is not used to entering a PIN," he says. "If they suddenly have to have one, they may not realize they have a PIN or will forget their PIN, and that could be a challenge at the point of sale."
Banks may also be wary of moving too quickly toward PINs after studying the experiences of other countries' conversions to EMV. For instance, Canada converted MasterCard accounts from magnetic stripes to chip-and-PIN technology in October 2008 and made the new cards mandatory from the beginning.
But one of Canada's six big banks mismanaged the process, sending PINs out too early before the switchover and botching the communications with customers, says Julie Conroy, research director with Aite Group. She declined to identify the bank.
"Consumers got to the point of sale, tried to use a card for which they had no idea what the PIN number was and stopped using the card," she says. "The bank saw some hits to its bottom line. ... As U.S. issuers are looking at this, no issuer wants to be the card in the wallet that has the most challenging user experience."
That experience suggests that any wide-scale U.S. conversion to chip-and-PIN cards could take place more gradually, as happened in Australia.
Options for travelers
International travelers have a few options for ensuring they don't get tripped up by the different credit card standards.
Perhaps the most obvious solution is to carry sufficient cash to pay for items when cards won't work.
A second option is to turn to one of the U.S. card issuers that offer chip-and-PIN cards. These are typically smaller banks and credit unions. Examples include Andrews Federal Credit Union, Pentagon Federal Credit Union and Barclaycard. Most of the cards from those institutions have dual capability as chip-and-signature and chip-and-PIN.
But don't look for bigger banks to follow suit anytime soon: Of 18 top card issuers surveyed by Aite Group this spring, 13 said they were planning chip-and-signature cards, and just one said it was going with chip-and-PIN. The other four were undecided.
If customers began clamoring for chip-and-PIN cards -- say, if there were more high-profile data breaches -- that would help force the hand of more issuers to offer them, Conroy says. But that hasn't happened yet.
Conroy says that for travelers, that distinction will become less important in the coming years, as companies overseas begin introducing new credit card terminals that accept both chip-and-signature and chip-and-PIN technologies.See related: 8 FAQs about the new EMV credit cards, Data breaches turn spotlight on EMV cards, Is a smart-chip card needed when I travel to Europe?
Updated: November 10, 2014
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