EMV Commercial Card Issuers May Herald PIN Dominance With Consumers

It’s still very early in the U.S. smart card game, but so far chip-and-PIN authentication dominates among commercial card issuers, according to new research by First Annapolis Consulting Inc. The findings could signal that chip-and-PIN will beat out chip-and-signature authentication as the United States prepares for broader smart card issuance to consumers in the next few years.

Annapolis, Md.-based First Annapolis recently reviewed the top 20 commercial card issuers’ Web sites, press releases and other public information for evidence about their issuance of Europay-MasterCard-Visa (EMV) chip cards and the types of authentication they use with such cards. As U.S. credit and debit card issuers and merchants prepare for a major EMV deadline in October 2015, the authentication issue—especially if signatures or PINs should be used with chip card transactions—is a matter of hot debate.

In its April First Annapolis Navigator newsletter, the firm says nine of the 10 leading commercial card issuers are now offering EMV commercial cards to at least some of their corporate and small-business customers whereas only one still offers only magnetic-stripe cards. Of those offering chip cards, seven use chip-and-PIN authentication and only two use chip-and-signature.

Among the top 20 commercial card issuers, 13 issue EMV chip cards, with 10 offering chip-and-PIN and three using chip-and-signature. The report doesn’t identify issuers, but the leading commercial card issuers by and large include the nation’s top banks as well as American Express Co., a top corporate card issuer, and some specialists such as WEX Inc. and Comdata Network Inc.

Although the numbers of EMV chip cards aren’t available, such cards currently have a greater penetration among business users than among consumers because corporate employees and small-business owners tend to travel frequently. With the United States being the last major industrial country not yet on the EMV standard, many American issuers in the past couple of years have given EMV cards to the frequent travelers in their portfolios so that they don’t have problems using mag-stripe cards abroad.

The PIN-versus-signature debate has divided the payments industry ahead of the October 2015 liability shift. That’s when the card networks will assign liability for counterfeit fraud from a point-of-sale transaction to the party—issuer or merchant acquirer—that didn’t support EMV. Visa Inc. and some issuers have supported chip-and-signature, noting that EMV chips have strong anti-fraud protections and signature cards would not require a major change in cardholder behavior—learning to input a PIN when using a credit card.

Visa chief executive Charles Scharf discussed the impediments to chip-and-PIN at a JPMorgan Chase & Co. investor conference Monday in Boston. Besides the cardholder behavior change, Scharf noted that two-thirds of U.S. merchants today do not have PIN pads. But he said Visa will be flexible.

“The friction that can be created at the point of sale by not remembering the PIN, having the card not work … is not something that we think we should mandate in a very short period of time,” he said. “So we use ‘chip-and-choice,’ choice meaning let’s figure out what the merchants want, what the issuers want, and we will move forward with them. And it’ll likely be signature for a longer a period of time. But eventually, if PIN is where the world wants to go, we’re there alongside it as well.”

Retailers that have expressed a preference have mostly favored chip-and-PIN, as have trade groups such as the National Retail Federation. And so far, it looks like most issuers want chip-and-PIN, which is common abroad. But the issue is far from settled, says First Annapolis associate Dan O’Neill, who specializes in commercial payments. Issuers are starting to test for cardholder preferences and operational glitches, he notes.

“There’s a lot to be seen still,” says O’Neill. “The ones that are going chip-and-PIN are saying, ‘Let’s get this over with, we need to meet the criteria for the liability shift and we need to meet the needs of our customers’ [who are traveling abroad.]”

In contrast, issuers offering chip-and-signature cards can say they have met the liability-shift mandate and are sparing their customers the need to enter a PIN when using a credit card, he says.

AmEx in April 2013 began offering chip-and-signature corporate cards in the United States and uses signature as well as PINs for chip card authentication in other countries. PNC Bank N.A., a large regional issuer, started out offering chip-and-signature EMV commercial cards but on May 5 announced it was adding chip-and-PIN capability. The Pittsburgh-based bank noted in a press release the PIN’s added layer of security, and said that “the card provides a better user experience for those traveling internationally where PIN terminals are common, primarily at unstaffed kiosks, which require PIN authentication in many countries outside of the U.S.”

Only about 1% of the 1-billion-plus credit, debit and prepaid cards in the United States currently have an EMV chip. Regardless of which authentication method they want to use, issuers should be testing the EMV standard now, ahead of the expected mass consumer distribution in the coming years, according to O’Neill.

“The major issuers need to have some sort of strategy,” he says. “If you’re unaware of it, you’re going to be left behind.”

In a separate study noted in its latest newsletter, First Annapolis reported that 55% of 200 small and mid-sized merchants it surveyed in April did not know if their point-of-sale hardware and software could support EMV transactions, and 25% said their systems were not EMV-capable.

Those findings echo results from a recent study by Javelin Strategy & Researchpredicted the United States will have only partially converted to EMV by the 2015 liability-shift deadline.