Coming Soon to a Wallet Near You: Chip-and-PIN Cards
By Eva Norlyk Smith, Ph.D.
April 19, 2011
Americans traveling overseas may have to worry less in the future about whether their credit cards will be accepted by overseas vendors.
Wells Fargo and Chase recently announced that they will pilot credit cards with chip-and-PIN technology, and more card issuers are expected to eventually follow their lead.
Chip-and-PIN credit cards have long been the standard in Europe, Canada, China, Japan, Canada, Mexico and Brazil; and as a result, magnetic stripe credit cards are slowly becoming obsolete in these countries.
A more secure card that’s internationally accepted
Chip-and-PIN credit cards feature an embedded microprocessor chip, which contains the credit card information needed to process transactions. The chip offers more sophisticated security features than magnetic stripe credit cards, affording better protection against credit card fraud.
Chip-and-PIN cards are also referred to as EMV credit cards, an acronym derived from the initials of the three companies, Europay, MasterCard and Visa, that teamed up to develop the standards for the new technology.
According to Eric Schindewolf, vice president of product development for Wells Fargo Consumer Credit Card, the bank’s new EMV pilot program is largely spurred by consumer demand.
“We regularly hear from customers who have problems getting their magnetic stripe card accepted,” says Schindewolf. “So we’re basically responding to our customers’ needs to help them avoid the difficulties that they currently face when traveling internationally.”
While major merchants in European countries still retain the ability to process magnetic stripe credit cards, American travelers have increasingly begun to have problems when trying to use their credit cards with smaller vendors, or with kiosks, automatic vending machines or even subway ticket machines.
The Visa Smart Card issued by Wells Fargo’s pilot program will initially be sent to 15,000 Wells Fargo credit card customers who frequently travel abroad—such as students and business travelers.
The EMV credit card to be issued by Chase, the JPMorgan Palladium Visa card, on the other hand, will mainly target affluent Chase customers who can afford the card’s $595 annual fee. However, according to a Chase representative, Chase expects to follow suit with other Chase-branded credit cards later in the year.
A slow, uncertain transition to the U.S.
Why has it taken so long for EMV credit cards to make their way into the wallets of U.S. consumers? The main reason is that a complete transition to EMV cards would require merchants to upgrade their point-of-sale terminals in order to process chip-embedded credit cards. Needless to say, this is a costly proposition, and experts have long predicted that chip-and-PIN technology might never take root in the U.S. because of the high costs.
The new EMV credit cards to be introduced by Wells Fargo and Chase feature a surprisingly simple solution, however: Create a credit card that features both technologies.
“The Visa Smart card contains both a traditional magnetic stripe, so it will work in the U.S., as well as the EMV functionality, which will enable its use both here in the U.S. and Europe,” explains Schindewolf.
If the two pilot programs are successful, other card issuers are sure to follow their lead, say experts. However, while the new technology will benefit U.S. travelers, consumers may not benefit domestically from the enhanced security features of EMV credit cards. That will depend on whether U.S. merchants are willing to foot the bill to upgrade their payment terminals to accommodate EMV credit cards. Still, some large U.S. retailers, most notably Walmart, have already taken steps to incorporate chip-and-PIN credit cards in the payment terminals of Walmart stores.
Even as industry experts welcomed the announcement of the new EMV credit cards, it may be too little too late for some American travelers. According to a 2009 study by Aite Group, a Boston-based research firm, almost 10 million U.S. travelers had problems getting their credit accepted in 2008 alone, resulting in $447 million in lost credit card processing fees for card issuers.
The Chase and Wells Fargo EMV pilot programs will be rolled out over the next few months; however, chip-and-PIN credit cards are not likely to be widely available for a while. So, if you’re planning to travel overseas this summer, be sure to bring plenty of cash or traveler’s checks for situations where your credit cards won’t work. Another option is to bring a prepaid debit card that works overseas, such as Cash Passport, an EMV card issued by currency converter Travelex.