Now Taking EMV Cards at Some U.S. Stores, Wal-Mart Prods EFT Networks to Get in the Game

With both Visa Inc. and MasterCard Inc. now on the record with plans to encourage the adoption of EMV chip card and mobile payments in the U.S, it seems all but certain that the magnetic-stripe payment card’s days are numbered. In fact, Wal-Mart Stores Inc. already is seeing some EMV transactions, and so far the cards have worked well, according to an executive with the world’s largest retailer.

But  Jamie Henry, senior director of payment services in Wal-Mart’s corporate treasury department, also let it be known Wal-Mart is disappointed that more PIN-debit networks have not become involved in offering EMV. And, in the face of chip-and-signature cards being issued so far by major banks for traveling customers, he also spoke out strongly in favor of PIN authentication for EMV.

Wal-Mart turned on EMV acceptance in October at fewer than 100 stores, most in areas that draw many foreign visitors such as Orlando, Fla., Henry tells Digital Transactions News. EMV is well established in Europe and much of Asia and Latin America, and is in the latter stages of roll out in Canada, which leaves the U.S. as the last major bastion of the mag stripe.

Charge volume on the cards has been about $1 million, a mere drop in Wal-Mart’s U.S. sales ocean of $191.4 billion for the nine months ended Oct. 31. But Henry expects volume to increase as Wal-Mart adds EMV capabilities to more stores. He won’t say how many of Wal-Mart’s approximately 3,600 U.S. stores would be added in 2012.

Wal-Mart’s experience with fraud on EMV cards lends support to one of the prime arguments for EMV: much less point-of-sale fraud than generated by mag-stripe cards. “Zero chargebacks” is how Henry describes EMV at Wal-Mart.

Customers with EMV cards are moving through checkout lines just as quickly as those with conventional cards, Henry adds. “It has not had an impact on our customer visit,” says Henry, a panelist Wednesday at the Smart Card Alliance’s 2012 Payments Summit in Salt Lake City, Utah.

Payment cards in EMV countries typically still come with a mag-stripe. When a foreign visitor in a Wal-Mart store equipped with EMV terminals tries to swipe a chip card at a terminal, which would activate the mag-stripe, the terminal prompts the cardholder to “dip” the card into the device so that it reads the chip, Henry says.

Wal-Mart’s EMV terminals come from France-based Ingenico S.A.’s North American subsidiary and San Jose, Calif.-based VeriFone Systems Inc. The terminal makers are adding EMV capabilities to their devices for the U.S. market in anticipation of widespread EMV adoption.

While Wal-Mart’s point-of-sale experience with EMV has been positive, the company has some issues with how the system is getting off the ground in the U.S. A strong proponent of PIN-debit services from electronic funds transfer networks, Wal-Mart says the EFT networks, with the lone exception of First Data Corp.’s Star, are leaving the EMV field almost entirely to Visa and MasterCard.

Their absence in EMV’s early U.S. days could mean the EFT networks might get shut out of the real estate on EMV chips, according to Henry. That’s because the card networks limit debit card applications to just their own and whatever additional network or networks the debit card issuer chooses to add in order to meet the requirements of the Federal Reserve Board’s new rule implementing 2010’s Durbin Amendment. The rule calls for merchants to have at least two network choices for routing each debit transaction. In contrast, a single debit application on the chip with identifiers for the various EFT networks would open up more routing possibilities, Henry says.

“Frankly, it’s disappointing,” he says. “They need to get their systems ready for EMV.”

Another issue: Wal-Mart prefers retaining the PIN in any U.S. EMV scheme, somewhat akin to card payments in Europe where cardholders type in a PIN at the point of sale to verify themselves and where EMV is commonly known as chip-and-PIN. The few U.S. issuers that offer EMV cards so far use signature authentication.

Visa’s plan allows for the PIN but de-emphasizes it in favor of dynamic authentication that relies on unique transaction identifiers while also allowing for signatures. MasterCard’s plan also endorses dynamic authentication but gives the PIN greater prominence than Visa. Dynamic authentication draws on real-time, or online, telecommunication links for the exchange of data, which is why many security experts say it’s superior to a static, or offline, PIN. Dynamic authentication is fine with Henry, but so is the offline PIN because it’s proven itself through very low fraud rates on mag-stripe debit cards. And signatures? “Worthless,” he says.

During a conference panel session, Jennifer Fischer, Visa’s head of U.S. payment system risk, noted that dynamic authentication eliminates the possibility that a fraudster could capture a card number and PIN that could be used multiple times and is possible because of the extensive telecom connections in the U.S. “We are not requiring the chip-and-PIN, but with that said, we do support the PIN, as well as signature, or no cardholder verification method for lower-risk transactions, so we want to offer flexibility of choice,” she said. Fischer added that Visa sees PINs in EMV as primarily for cardholders traveling to the U.S.