October 2015: The end of the swipe-and-sign credit card

Most of the world uses an embedded chip, pin based credit card system. The US does not. That is going to change next year.

The Wall Street Journal interviewed MasterCard’s Carolyn Balfany to discuss the particulars.

Interesting reading. Of particular note, on the question of why the rest of world went one way and the US another:

There’s a historical view to this. In the past, other markets migrated for two reasons. First, there were higher fraud rates in some other markets, and they wanted to make this move to combat fraud. Second, this system can operate in offline mode – the card and the terminal can authorize a transaction independent of communication with the bank’s systems. In some other markets they struggled with robust telephony networks, so this offline capacity was attractive.

Both those factors were not driving factors here in America. Fraud was more prominent in some other markets, but what has happened since then is that as other markets migrated to EMV and became more secure, fraudsters migrated their activity to markets with less security. We saw fraudsters move over to the US market – they are looking for the path of least resistance.

There were also some more specific challenges to US migration to the new system. Because the US is one of the largest and most complex markets, the business cases for the costs had to be established. And there were requirements of the Durbin amendment, mandating all us debit transactions are able to go across at least two networks, which took some time for the industry to sort out.

  • “In some other markets they struggled with robust telephony networks, so this offline capacity was attractive.”

    Seriously? I worked in a bookstore in France more than 30 years ago, and they used terminals for credit cards that connected to servers. There was nothing un-robust about the telephone network. I don’t think the network thing has anything to do with Europe’s use of chip and PIN cards.

    • vincentbir

      I was about to give the same comment. 🙂

    • Meaux

      So one bookstore in an unidentified part of France is evidence of the robustness of a telephony network? Does LTE coverage in Anchorage tell much about how robust the LTE network in Alaska is?

      • It’s an example of the robustness of the telephone network in a country which, back then, had a very bad reputation for its telephone network. This bookstore was in a small city of about 50,000 people, not Paris or another large city. It’s indicative of the network in that country, and probably much of western Europe at the time.

    • dustinwilson

      There are very, very remote places in the United States, and laws that govern transactions must take them into account.

      One bookstore in one part of France isn’t indicative of the entirety of France much less the entirety of the United States. I can tell you 30 years ago there were credit card terminals in New York City that connected to servers, but in Nome, Alaska there wasn’t. You don’t just force a change and then tell a large portion of the country to go F itself when the technology isn’t cheap enough at the time to proliferate across a vast continent with an enormous amount of people.

      However, your reason for comment was mostly PR BS speak. The only reason why US credit cards haven’t switched to chip and PIN systems by now is simple: there were no market forces requiring a change, so the credit card companies had no outside forces pushing them toward a change until now.

  • alj_disc

    the main reason, is as usual patents. Roland Moreno (Inventor) company Gemplus was very early in relationship with Carte Bleue group and VISA. There was patents shared by the 3.

    Others Card Paiements Processors were unwilling to pay the patent fees and at the same time reduce costs for merchants with the increased security. They even successfully lobbied ISO to change the position of the chip on the card so the European system could not be adopted quickly (the original chip was in upper left, not center left). The last patents dropped in 2011 and the USA adoption plan was scheduled to start in 2012.

    Do I need to make a drawing ?

    The only one who lost are US customers who enjoyed for 30 years fee rates on card transactions higher than anywhere else in the world for compensating fraud. The fee is of course reflected in the price by merchants whether you pay cash or not.

    Note though that a majority of Euro card payments are debit cards not credit ones because of different habits.