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Visa won't force US merchants to adopt "chip-and-PIN"

By , CardRatings contributor
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After setting a 2015 deadline for installing a new generation of retail credit card terminals, Visa has taken steps to assure merchants that it doesn't intend to bring the stricter "chip-and-PIN" requirements from Europe into the United States. Visa spokeswoman Stephanie Ericksen took to her company's blog this month, clarifying that "EMV technology" can refer to both the exposed smart chips popular overseas and the contactless chips embedded in recently issued American credit cards.

Ericksen explained that European banks and merchants embraced a mandatory PIN for all credit card transactions in the mid-1990s as a fraud deterrent. The embedded smart chips in European credit cards not only make magnetic strips obsolete, they contain an algorithm that let merchant terminals validate a PIN without being connected to an online payment network.

The EMV chip solved a major problem at its launch in 1994, according to Ericksen. Few European retailers connected their cash registers to phone lines for real-time validation, a practice that became common in the United States. Therefore, European banks paired the mandatory PIN with "floor limits," a set of calculations that would let retailers make their best guess about a customer's available credit. Americans rely more on credit card issuers' fraud detection teams, choosing to use optional PINs fewer than 20 percent of the time.

Internet and wireless validation eliminates need for PIN, say officials

Times have changed, however, and as retailers use the Internet and mobile, wireless devices to stay connected to payment processing networks, Visa feels confident about championing the latest iteration of EMV standards. By 2015, retailers must absorb the costs of fraudulent transactions performed without realtime cardholder verification. For most face-to-face transactions, this means switching from a swiped credit card to a "tap and go" purchase. Online, consumers can use a variety of verification tools, such the "Verified by Visa" service or the MasterCard SecureCode PIN.

After Visa's deadline, merchants may still prefer to accept swiped or manually entered credit card numbers for low-risk transactions. However, they'll bear the costs of refunding fraudulent transactions, a function currently handled by issuing banks. In return for investing in EMV-capable checkout terminals, merchants can bypass expensive security inspections. Ericksen and other Visa officials have told reporters that the policy change should more than pay for the new equipment expense over the next few years.

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