U.S. Issuers Begin to Fret About Mag-Stripe Problems Overseas

U.S. card issuers are starting to worry about problems some of their high-spending and corporate card customers are having using their magnetic-stripe cards in countries that support the chip-and-PIN standard, according to executives who spoke on Tuesday at a smart card conference. Whereas the issue hardly seemed apparent only a few months ago, coming events such as the 2012 Olympic Games in London are causing at least some issuers to begin exploring options, the executives said. “A couple have expressed concern,” Simon Hurry, a vice president at Visa International, told Digital Transactions News after he and others addressed the issue during a panel discussion. Hurry didn't name the issuers, and said as far as he knew they were only at the very start of their investigation of alternatives, adding that U.S. banks have had plenty of other concerns to contend with in recent months. But clearly the issue is higher on issuers' list of priorities. Refusal by merchants in popular destination markets like Western Europe to accept mag-stripe cards “is impacting their best customers,” said Jack Jania, vice president for secure transactions at Gemalto N.V., which earlier this month introduced a chip-based travel card that U.S. financial institutions can issue to customers who travel frequently to markets that support the so-called EMV standard, the protocol for cards that use an embedded chip and a PIN to authenticate transactions. On an EMV card, the chip stores the card's account data. Cardholders enter a PIN at the point of sale that must match the encrypted PIN in the chip for the transaction to proceed. Besides special events like the Olympic Games, the rapid spread of EMV-accepting self-service machines is also adding pressure to find a solution. Speaking as a member of the panel, Jania said he has had to stand in long lines for transit passes in Paris while holders of EMV cards get passes in minutes from special kiosks. He also cited press reports indicating some merchants are charging fees to holders of mag-stripe cards to run transactions. “This is a bigger issue than has been reported,” he said. To help U.S. financial institutions equip their customers for overseas travel, Visa's Hurry said the card network is investigating the idea of drawing up specifications for a sort of stripped-down EMV card that would feature a chip but would still require online authorization. By avoiding offline authentication, the card would bypass costly encryption requirements, Hurry said. “It would be fully EMV-compliant and could be done with minimal cost and complexity,” he told the audience at the 2010 Payments Summit in Salt Lake City, sponsored by the Smart Card Alliance, a Princeton Junction, N.J.-based trade group. The card could be aimed at “high-end customers and corporate card holders,” he said. A report released in October by Aite Group LLC estimated that 9.7 million U.S. cardholders had some kind of problem with card payments overseas in 2008 and said travelers from the U.S. have an almost 50% chance of running into such issues. Because of these problems, issuers and others in the U.S. card industry lost out on $3.9 billion in transactions and $447 million in revenue in 2008, the report said. The U.S. remains the only industrialized nation not to adopt the EMV standard. Not only has Western Europe implemented chip-and-PIN, but Canada is in the process of rolling it out, with Mexico to follow suit. Some 730 million EMV cards are now in circulation in 113 countries, according to Visa.