RT-UPDATE: MasterCard Urging Merchants, Banks To Upgrade Card Technology
Last Update: 1/30/2012 5:41:02 PM
--MasterCard shifting liability for some card fraud to merchants in 2015
--Move follows similar plans by Visa
--Chip-based cards considered more secure than magnetic-stripe cards
(Updated with details about mobile payments in paragraph 12 and comment from
industry executive in paragraphs 15 and 16.)
By Andrew R. Johnson
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--MasterCard Inc. (MA) is pushing merchants to upgrade their
checkout systems to handle high-tech credit and debit cards that store
information inside a computer chip rather than a magnetic stripe.
Such technology is common in foreign countries, where banks for years have issued
chip-enabled cards to their customers to cut down on fraud and meet regional
standards or country regulations. It has yet to catch on in the U.S. market.
The technology, which adheres to card industry standards known as EMV, is
considered to be more secure than magnetic-stripe cards because customer data is
encrypted inside a chip, making it harder to hack into. While a handful of U.S.
banks and credit unions have begun issuing the cards here in the last two years,
mostly to customers who travel abroad, retailers have held off on upgrading their
payment terminals because of costs.
"The U.S. has become an island in waters that are surrounded by EMV," Chris
McWilton, president of U.S. markets for MasterCard, said in an interview Monday.
"We're the only major market in the world that hasn't adopted the EMV standard."
MasterCard competitor Visa Inc. (V) last year announced a similar plan intended
to spur adoption of the technology, which some analysts said would be slow to
gain traction without agreement from competing card-processing networks.
"It's only effective if the other networks do the same," said Julie Conroy
McNelley, a senior analyst with market research firm Aite Group LLC.
Merchants don't want to spend money on technology if the benefits and
requirements differ among card companies, McNelley said.
MasterCard plans to shift liability starting in October 2015 to merchants who
have not upgraded their checkout equipment to process transactions made with
chip-based cards if a customer pays with such a card and fraud occurs, McWilton
said. Banks currently pay for most card-fraud costs.
The company will also allow merchants to reduce some security-audit activities if
they upgrade to certain EMV terminals. That relief would phase in beginning
October 2013. However, they must still be in compliance with the security
requirements.
MasterCard is urging banks that issue its cards to adopt the standard, and will
hold them liable for some forms of card fraud if they have not issued chip-based
cards to their customers, depending on whether a merchant has EMV terminals,
McWilton said.
"Our thinking here is what we've got to do is ... get the infrastructure and the
ecosystem for payments in the United States to eventually enable a better
customer experience," McWilton said.
A move to EMV equipment by merchants could also advance mobile-payment
technology, experts said. The terminals that handle chip-based cards are often
compatible with systems that allow customers to tap and pay with a smartphone
embedded with payment technology. Such systems are just now being rolled out or
tested in the United States.
A handful of banks, including J.P. Morgan Chase & Co. (JPM), Wells Fargo & Co.
(WFC) and U.S. Bancorp (USB), as well as some credit unions have begun offering
EMV cards to customers who travel abroad frequently.
Their motivation is to cut down on complaints from customers who frequently run
into problems trying to use their magnetic-stripe cards overseas. Many overseas
merchants insist on accepting chip-enabled cards, and some machines, like ticket
kiosks, can't handle magnetic-stripe cards.
A wider scale deployment by U.S. banks isn't likely until merchants begin to
upgrade, said Randy Vanderhoof, executive director of the Smart Card Alliance, an
organization that promotes the technology.
"At that point it will make economic sense for the issuing banks in the U.S. to
start converting their mag-stripe portfolios over to" chip-based cards,
Vanderhoof said.
MasterCard's move follows initiatives announced last year by Visa, which is
trying to boost merchant adoption by allowing certain retailers to avoid some
annual security assessments while eventually shifting the liability for card
fraud onto the shoulders of merchants who don't upgrade.
Visa's security incentive is set to kick in this October and its liability shift
is scheduled for October 2015.
MasterCard and Visa do not lend or issue cards to consumers; rather, they process
transactions for the banks that issue their cards to customers.
Both companies' plans require the banks that handle card transactions for
retailers, known as merchant acquirers, also be equipped to handle chip-based
cards by April 2013.
MasterCard took into consideration Visa's timeline when establishing its
schedule, McWilton said, adding that merchants, banks and other parties said it
was important to have a uniform roadmap to work toward. |
