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Chip Card Confusion Could Challenge Chains’ POS Plans

August 15th, 2012

Chip transactions are processed differently in different parts of the world. For example, in Europe most transactions are offline, relying on the combination of the chip and the cardholder’s PIN. In the U.S. all transactions are processed online, positively authorized by the issuer, and then finalized when the cardholder signs a receipt.

Visa sees no change in the U.S. model, so it tells its acquirers to “configure EMV chip terminals to support online options only.” It is tough to argue with Visa’s logic: What issuer—or merchant—would not want to know if the cardholder had funds available? In situations where a merchant loses communications and cannot be online, the merchant is to batch transactions and submit them to the acquirer once the connection is back online. PIN verification remains optional, with no change to the requirement that if a merchant processes PIN-based transactions, it must use a PIN entry device that is PCI PIN Transaction Security (PCI PTS) compliant.

If there is a downside in Visa’s bulletin it is its recommendations to issuers. Specifically, Visa recommends that U.S. chip cards be issued to “support online authorization only” and not to support offline Chip-and-PIN. On a personal note, I understand Visa’s justification, i.e., providing issuers with better fraud detection and risk management. However the result is that U.S. cardholders like me still won’t be any better off when traveling outside the U.S.

For example, without offline Chip-and-PIN I will have a shiny new chip card, but I’m not sure it will be any more useful than my archaic magstripe card when I try and buy a train ticket in Germany, rent a bicycle in Paris or pay a toll on the Autostrada. (Note: I have the personal experience of failing at each of these, to the chagrin of those waiting—and in the last case, honking their horns—behind me.) Visa reports more positively in its blog on one executive’s experience of using a U.S.-issued chip card in London:

“Making purchases was quick and simple. The main difference was that instead of swiping my card, I inserted it in the terminal. Then I simply signed for my purchase, just as I normally would in the U.S.”

So I guess this means even my U.S. chip card will continue to require manual procedures on both the merchant’s part and my part when I travel outside of my home market.

What do you think? Are you ready for the U.S. move to chip cards? I’d like to hear your thoughts. Either leave a comment or E-mail me.


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Most Recent Comments

Why Did Gonzales Hackers Like European Cards So Much Better?

I am still unclear about the core point here-- why higher value of European cards. Supply and demand, yes, makes sense. But the fact that the cards were chip and pin (EMV) should make them less valuable because that demonstrably reduces the ability to use them fraudulently. Did the author mean that the chip and pin cards could be used in a country where EMV is not implemented--the US--and this mis-match make it easier to us them since the issuing banks may not have as robust anti-fraud controls as non-EMV banks because they assumed EMV would do the fraud prevention for them Read more...
Two possible reasons that I can think of and have seen in the past - 1) Cards issued by European banks when used online cross border don't usually support AVS checks. So, when a European card is used with a billing address that's in the US, an ecom merchant wouldn't necessarily know that the shipping zip code doesn't match the billing code. 2) Also, in offline chip countries the card determines whether or not a transaction is approved, not the issuer. In my experience, European issuers haven't developed the same checks on authorization requests as US issuers. So, these cards might be more valuable because they are more likely to get approved. Read more...
A smart card slot in terminals doesn't mean there is a reader or that the reader is activated. Then, activated reader or not, the U.S. processors don't have apps certified or ready to load into those terminals to accept and process smart card transactions just yet. Don't get your card(t) before the terminal (horse). Read more...
The marketplace does speak. More fraud capacity translates to higher value for the stolen data. Because nearly 100% of all US transactions are authorized online in real time, we have less fraud regardless of whether the card is Magstripe only or chip and PIn. Hence, $10 prices for US cards vs $25 for the European counterparts. Read more...
@David True. The European cards have both an EMV chip AND a mag stripe. Europeans may generally use the chip for their transactions, but the insecure stripe remains vulnerable to skimming, whether it be from a false front on an ATM or a dishonest waiter with a handheld skimmer. If their stripe is skimmed, the track data can still be cloned and used fraudulently in the United States. If European banks only detect fraud from 9-5 GMT, that might explain why American criminals prefer them over American bank issued cards, who have fraud detection in place 24x7. Read more...

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