MasterCard Urging Merchants, Banks To Upgrade Card Technology
January 30 2012 - 5:25PM
Dow Jones News
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 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.
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 assesments 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.
-By Andrew R. Johnson, Dow Jones Newswires; 212-416-3214;
andrew.r.johnson@dowjones.com
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