Wal-Mart Stores Inc. recently announced that the company plans to adapt all of its U.S. payment terminals for compatibility with smartcard technology, a.k.a. Chip-and-PIN credit cards. As the largest retailer in the world, Wal-mart’s move may well result in a renewed push towards adaptation of the smartcard technology in this country. However, while Wal-mart may have decided to try to sell American consumers on Chip-and-PIN cards, it remains to be seen if the U.S. public and financial institutions will buy.
Increasingly common around the world, Chip-and-PIN credit cards use an embedded microprocessor instead of a magnetic stripe to store cardholder data. Also known as EMV cards, (derived from the three credit card brands Europay, Mastercard and Visa, which originated the technology in Europe), smartcards provide superior security over magnetic strip credit cards. When completing transactions, cardholders don’t sign the receipt to approve the purchase, but rather enter a PIN number only known to them. The PIN code protects cardholders, retailers, and credit card issuers from unauthorized use, should the credit card fall into the wrong hands.
Over the past several years, Chip-and-PIN credit cards have become the standard around the world. The smartcard technology was introduced in Europe as early as 2004, and most E.U. countries have already adopted them or are in the process of converting to the new technology. In Canada, the conversion began in 2008, and 65 percent of debit and credit cards are now chip-enabled with full conversion expected by 2015. EMV cards are increasingly the standard in Australia, Latin America, Mexico, and parts of Asia, as well.
So far, financial institutions in the U.S. have been reluctant to upgrade to Chip-and-PIN systems, because of the perceived costs associated with the technology. Merchants must modernize or replace all their existing terminals to accept the smartcard transactions, and banks would have to issue new credit cards to all their cardholders.
Still, the move by Wal-Mart could encourage a ripple effect. As the largest retailer in the world with $405 billion in annual sales, the Wal-Mart decision to support Chip-and-PIN might finally nudge U.S. card issuers, payment processors and other merchants to adopt the smartcard technology.
Supporters of Chip-and-PIN cards argue that the traditional magnetic strip credit card technology is becoming obsolete and represents too high a security risk. Further, with most major economies already standardizing Chip-and-PIN credit cards, the less secure credit cards used in the U.S. could attract higher levels of credit card fraud.
In addition, there are growing concerns that U.S. cardholders may find it increasingly difficult to use their magnetic strip cards outside the U.S. A recent survey found that already, U.S. cardholders on average had about a 50-50 chance of experiencing some sort of problem using their credit cards in Europe, because payment terminals overseas increasingly support only smartcards.
Wal-mart expects its point-of-sale software to be Chip-and-PIN compliant by early next year at the latest. Since Wal-Mart payment terminals all over the world already have to be smartcard compatible, it is relatively easy for the giant retailer to repurpose Chip-and-PIN software coding from its payment terminals in other countries, such as Canada.
However, while the Wal-mart payment terminals may soon be able to accept Chip-and-PIN credit cards, it’s as of yet uncertain whether U.S. consumers will have Chip-and-PIN credit cards to swipe. So far, only one bank in the U.S., the United Nations Federal Credit Union, has launched plans to issue credit cards that comply with the smartcard standard. The credit services U.N. workers, who travel frequently, and who need credit cards that will work all over the world.
Whether other banks will voluntarily follow or whether it will take government intervention to get Chip-and-PIN credit cards introduced in the U.S. remains to be seen. Still, with the world’s largest retailer putting its weight, and possible lobbying dollars, behind smartcard technology, anything could be possible.