Bloomberg News Visa is tryng to replace magnet-stripe cards with chip-embedded cards.
The debate over chip-enabled cards has been a chicken-and-egg issue for years. Many merchants say they don't want to invest in the new technology if banks won't issue the cards. The banks, meanwhile, say they don't want to invest in the cards because newer technology, such as mobile-device payments, will leapfrog the need for the chip-enabled plastic.
The issue also has attracted attention from U.S. consumers who discover that their cards may not work when traveling abroad. U.S. cards often can't be used overseas in places where there is no attendant, such as an unmanned gas station or a train-ticket vending machine.
Visa executives acknowledge the conundrum, but say that they hope the new plan will provide incentives for both merchants and banks to embrace the chip technology. In addition to accepting traditional swipe cards and the chip-enabled cards, the cash-register terminals also will be equipped to process payments made with cell phones.
"We believe that as merchants start to move [toward the new technology] that the card issuers will see the merits, as well," says Ellen Richey, chief enterprise risk officer at San Francisco-based Visa.
Visa's plan drew immediate criticism from Wal-Mart Stores Inc., which called part of it meaningless, and said it could create a greater risk of fraud by eliminating some of the industry's current security rules. The Bentonville, Ark., retailer has installed chip-enabled devices at its cash registers, but most of its customers don't have chip cards.
"This seems to be yet another example of how a card network attempts to accomplish an objective, while offering little benefit to other stakeholders in the payments system," said Mike Cook, vice president and assistant treasurer at Wal-Mart.
Visa plans to entice merchants to buy the new terminals by eliminating a requirement that they annually validate compliance with an industry security standard showing they are protected from fraud. Merchants have long complained about the program, saying that it is confusing and doesn't prevent fraud. Visa said that beginning Oct. 1, 2012, the annual compliance would be waived if at least 75% of Visa transactions come from the chip-enabled terminal.
Furthermore, starting in 2015, merchants who don't have the new technology could be responsible for the costs of any fraud that stems from a transaction where a chip-enabled card was presented but couldn't be used, Visa said. Such costs are now borne by banks that issue cards.
It isn't clear whether Visa's plan will give issuers any more incentive to circulate the cards. In recent months, some banks have started issuing chip-enabled cards to high-end customers who are frequent travelers, but that distribution has been limited. "Ultimately we are trying to focus on whether or not there is customer demand," said a spokesman for J.P. Morgan Chase & Co.'s credit-card unit, one of Visa's biggest card issuers.
Visa's chief rival in the payment-network business, MasterCard Inc., said in a statement Tuesday that it "remains focused on working with issuers and merchants to drive electronic payments forward."
The diverging view of chip-enabled cards represents the latest fight in the increasingly hostile relationship between banks and merchants. The two groups have spent much of the year battling over a measure in the Dodd-Frank financial-overhaul law that ordered banks to reduce the fees charged to merchants for debit-card transactions. Banks lobbied heavily against the measure, but the Federal Reserve ultimately ordered the financial firms to drop their rates by roughly half.
The chip-card issue has heated up in the past couple of years due to a rash of card breaches. Thieves often develop counterfeit cards by duplicating the magnetic stripe, which contains personal account information. The chip cards, by contrast, create a unique number for each transaction, making duplication more difficult. A report from Verizon Communications Inc. and the U.S. Secret Service found that card-skimming fraud incidents at retailers and bank automated teller machines are rising.
The adoption of new technology could cut by 30% the $8.6 billion in annual fraud losses incurred by card issuers and merchants, according to Aite Group LLC, a Boston-based consulting firm.
So far, the card industry has been willing to bet that incurring fraud will be cheaper than overhauling the payment system for the new technology. Mercator Advisory Group, a consulting firm that specializes in the payments industry, estimates that the adoption of the chip-based system would cost card issuers $2.8 billion and an additional $2.6 billion for merchants.
Read more: http://online.wsj.com/article/SB10001424053111904480904576498484264333872.html#ixzz1UdkbzXKS Visa Inc. is urging merchants to take the first step in resolving a long-running tussle over how to make U.S. credit and debit cards more secure and compatible with those used around the world.
Visa, which runs a network that processes electronic payments, announced a plan aimed at encouraging merchants to install technology at the cash register that accepts a card embedded with a computer chip. The card, which is widely available throughout the rest of the world, is considered to be more secure than traditional cards that have a magnetic stripe on the back.
There is just one problem: The cards are largely unavailable in the U.S. because banks say there isn't enough demand to justify their added cost.
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