The Real Deal on Chip and PIN (EMV) in the US
As many of you know EMV, or more commonly referred to as Chip and PIN (Chip/PIN), have been a long time structure in areas such as Europe and most of the Asia-Pacific region. Europe made the transition between 2001 to 2006. Canada has a mandate of October 2010 for implementation and the intra-region liability shift. The US it seems is now entering the came with a few very small but significant moves.
- Wal-Mart has asked for Chip-and-PIN saying that now is the time to roll it out.
- In May 2010, the United Nations Federal Credit Union (UNFCU) became the first financial institution to begin issuing Chip/PIN cards.
- It should be noted that although AmEx is not technically a “financial institution” in the US, it did issue its “Blue” card with a chip for such transactions in Europe.
So will this bring us all the safety and security we want? What will this change mean for cardholders and retailers? Those are more complicated answers and the answer really varies from one region/country/bank to the next. Here’s a few things that Chip/PIN changes do mean.
If you read the Visa OpRegs you’ll see three different listings for liability shift. Merchants that accept Chip/PIN transactions are not always liable for fraudulent transactions since the understanding is that they are asking for both a card and the PIN (something allegedly only the cardholder knows.)
These shifts in liability can be either domestic, intra-region or bilateral shifts (according to Visa). MasterCard says of domestic liability shifts, “A shift in liability to the non-EMV compliant party, fraud liability is born by non-EMV complaint party for all regional transactions. Bilateral shifts existed previously between the various Visa Regions, “Visa EU and CEMEA signed a bi-lateral agreement in order for the liability shift rule to apply for international transactions between both regions as soon as the CEMEA rule went into effect on January 2006.”
This shift takes the liability off the merchant, but who does it go to? Well according to the Financial Ombudsman Service (FOS) in the UK that handles consumer complaint disputes, it is the bank that is responsible for the fraud unless customers acted “without reasonable care”. This could include writing down a PIN or allowing someone else to use a card. What does this really mean? Well, banks around the world are struggling as consumers claim fraud and the banks claim “without reasonable care.”
In a ComputerWorld article, analyst Avivah Litan, says that “companies such as Visa and MasterCard should consider easing some of their security requirements for U.S. merchants willing to make their payment systems EMV-ready. Visa has reduced the scope of its security audits in cases where organizations have implemented EMV technologies, and the same could be done in the U.S”
Pardon? (Fallacy alert!)
Let’s remember that Chip/PIN only helps reduce fraud at a singular merchant, it does not reduce the instance of payment card data theft. In fact Chip/PIN transactions can be just as risky as magnetic stripe transactions from a data theft and skimming perspective. Chip/PIN cards used as a payment terminal may leave “track equivalent data” which cannot be used to recreate the Chip but could be used to re-encode the magnetic strip on the back of traditional cards. I mentioned this in 2008 and Gartner is still saying the same thing.
The US moving to Chip/PIN is a good thing and something that will drive down card-present fraud. It may not directly impact payment card data theft and thus will not detract from PCI DSS compliance. I remember teaching a PCI DSS class of QSAs (back then CISP assessors) in the UK back in 2006. They struggled with the problem that merchants in the UK thought they didn’t need PCI DSS compliance because they already had adopted Chip/PIN, something they already equated with “credit card security”. I blogged about this from 2006 – 2007 to explain the differences between Chip/PIN and PCI DSS compliance and risks.
Companies that adopt Chip/PIN will still need to comply with the PCI DSS. That being said, there are some benefits:
- Reduced interchange (in some instances)
- Reduced fraud (as measured in the UK by APACS)
- Liability shift for Chip/PIN transactions
- Visa International OpRegs on Chip/PIN global mandates (2007)
- Visa Regional OpRegs for Canada (2008)
- Visa Smart Debit/Credit Certification Authority Service Description (2008)
- RBSWorldPay talks about liability shifts