EMV Crosses the Ocean
Americans are usually indifferent to global standards but they’re embracing EMV, the smartcard technology that has dominated Europe for a decade. Just under a year from now, any merchant (except for gas stations) that isn’t on board will be held liable for fraud on a card they accept. American exceptionalism doesn’t stand against powerful anti-fraud security, a weapon that the metric system and IFRS just don’t wield.
When my wife and I lived in Paris, nearly ten years ago, the ubiquitous carte bleu was all you needed, even in the street markets. The merchant puts your card in the machine and hands it to you, you enter your pin, it beeps “Code bon” and you’re on your way, voila. We’ve been in New York seven years now, but it still feels quaint to go through that little dance where the waiter brings the bill, then goes away while you review it and lay down your card; then comes back to pick up your card and take it away; then finally returns with the whole little package of bill, card, signing pen, and receipt that you sign before you’re finally free to go.
The technology is convenient in restaurants and other places where money changes hands without a cash register at hand; but it’s real purpose is security. While it’s hard to believe given recent sensational stories of security breaches and credit card theft, the US didn’t have the same problem with fraud that Europe did. Whereas transactions tended to be batched there, giving fraudsters a window in which they get the benefit of the doubt, the US moved to online authentication early. That kept the problem more manageable, for years, but the harder fraud becomes elsewhere, the more attractive looks the American market. EMV has also taken a while to reach these shores because the swipe-and-sign approach has an investment in infrastructure here that companies haven’t been eager to replace so soon.
But as the those hacker stories mount up, the motivation for change has increased too. In Europe card transactions are growing while fraud continues to drop. When Canada adopted the technology in 2009, credit card fraud dropped to a third of what it had been the year before. That’s what finally convinced the credit card industry rip the band-aid off: implementing the change will cost billions: $4.2B to replace the cards and $2.6B for merchants to upgrade their POS hardware, although many existing terminals already support the technology.
In the US, chip cards will use PIN or signature authentication and can also be used to conduct contactless transactions. This goes further than the way they were introduced in Europe. The cards changed the way business is conducted there; you can be sure that settling up is going to look a lot different on this side of the Atlantic by the end of next year.
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