Why the U.S. Has not Adopted Chip-Based Credit Cards 2023
Why the U.S. Has not Adopted Chip-Based Credit Cards After the massive data breach at Target that was first reported on December 18th and affected up to 40 million credit and debit card.
Technology is slowly making its way to America Why the U.S. Has not Adopted Chip-Based Credit Cards:
I can’t seem to open a browser without coming across a headline asking why the US hasn’t given up yet magnetic stripe and have not adopted EMV technology as the rest of the developed world has. My initial reaction was “Don’t you read the UniBul blog?”, as we’ve covered this topic quite extensively over the years
Why the U.S. Has not Adopted Chip-Based Credit Cards.
But then I realized that the world doesn’t revolve around UniBul yet, and I thought I should revisit the subject. In my defense it only took me two weeks to figure it out Why the U.S. Has not Adopted Chip-Based Credit Cards.
So the short answer to the question everyone is asking is that it’s all about the money. It turns out that instead of embarking on a years-long rollout of the more secure EMV card technology, US credit card companies have found it preferable to continue to rely on old-fashioned belts and absorb huge fraud losses.
process. Not to mention that European merchants don’t always know how to accept mag-stripe cards at their EMV terminals, many Americans find themselves unable to use their cards in Europe, resulting in another hundreds of millions of dollars in lost annual revenue. for US card issuers ($447 million in 2008 alone).
However, the sum of these losses and lost revenue obviously pales in comparison to the $3 billion needed for a wholesale EMV transition (as estimated by Mercator Advisory Group) Why the U.S. Has not Adopted Chip-Based Credit Cards.

The good news is that we are making progress and EMV.
But let’s take a closer look at where we are at the moment and where we are headed Why the U.S. Has not Adopted Chip-Based Credit Cards.
Card fraud in the US
Let’s start with fraud losses. The American Bankers Association’s 2011 Deposit Account Fraud Survey report tells us that in 2010, debit card fraud losses totaled $955 million. From the “Nilson Report” study, we learned that the cumulative losses on bank cards (credit and debit) in 2010 reached 3.56 billion dollars. A report by A?áPaymentsSource calculated that card issuers alone lost $1.16 billion to fraud in 2Why the U.S. Has not Adopted Chip-Based Credit Cards.
Douglas A. King of the Federal Reserve Bank of Atlanta took a close look at these reports, and here’s what he found. According to PaymentsSource Bank Card Profitability Studies, losses to financial institutions from credit card fraud were the largest among payment cards and rose annually from 2006 to 2008, rising from $1 billion to $1.11 billion. After an aberration in 2009, when credit card fraud losses fell by 14 percent, they rose again in 2010, by 22 percent. Nilson Report data showed a similar trend in both the number and dollar value of credit card transactions during this time period.
So US card issuers are once again absorbing huge and growing losses from credit card fraud. And they knew very well what would happen if they switched to EMV – they knew because the Europeans had already done it. For example, here’s what happened in the UK after Brits switched from magnetic stripe to EMV credit cards in 2004:
Of course, the overall picture was much more complicated than these two graphs suggest, but it is clear that the EMV transition has reduced fraud in Europe. It’s also clear that the US card industry didn’t need convincing that the switch to EMV should be made at some point. After all, card issuers bear most of the losses from card fraud, as seen in the chart below (source) Why the U.S. Has not Adopted Chip-Based Credit Cards Why the U.S. Has not Adopted Chip-Based Credit Cards:
As you can see, cardholders suffered no fraud-related losses at all, which were split between issuers and merchants. In 2006, credit card fraud accounted for 61.9 percent of issuer losses, ATM withdrawals added 19.8 percent, signature debit transactions accounted for 16.8 percent, and PIN debit payments accounted for the remaining just under two percent.
The transition to EMV is underway
And yet, despite all these losses, instead of rushing to adopt EMV, the US credit card industry has instead dragged its feet. As mentioned, the biggest reason was that the transition would be costly. Still, Visa finally decided to push through with the release in 2011 when it announced plans to “accelerate chip migration and mobile payment adoption.” The acceleration in question would be the result of two separate initiatives Why the U.S. Has not Adopted Chip-Based Credit Cards:
Build process infrastructure for chip acceptance – Visa will require processors and subprocessor service providers in the US to be able to support merchant acceptance of chip transactions no later than April 1, 2013. Chip acceptance will require service providers to be able to transmit and process additional data , which are part of chip transactions, including a cryptographic message that makes each transaction unique Why the U.S. Has not Adopted Chip-Based Credit Cards.
Visa will provide additional guidance in its biennial BusinessFraud Liability Change Implementation – Visa intends to implement a liability change for domestic and cross-border counterfeit point-of-sale (POS) card transactions in the US effective October 1, 2015. Fuel merchants will have two more years, until October 1, 2017 , before the change in liability for transactions generated from automatic dispensers takes effect. Currently, counterfeit POS fraud is largely absorbed by card issuers.
Enhancements Release for acquirer processors to confirm that their systems can support EMV contact and contactless chip transactions Why the U.S. Has not Adopted Chip-Based Credit Cards.
With liability shifting, if a contact chip card is presented to a merchant that does not have a minimum of contact chip terminals, liability for counterfeit fraud may shift to the acquirer of the merchant. Liability shifting supports chip adoption because any chip-to-chip transaction (a chip card read by a chip terminal) provides dynamic authentication data that helps better protect all parties. The US is the only country in the world that has not committed to domestic or cross-border shifting of liability associated with chip payments Why the U.S. Has not Adopted Chip-Based Credit Cards.
It’s important to remember that smart card issuance is a much smaller piece of the puzzle that needs to be addressed, which is why Visa has focused its initiatives on acquirers and their merchants. Since acquirers would not want to take on any fraud-related losses, they would put pressure on their merchants to upgrade their POS systems and make them EMV-compliant Why the U.S. Has not Adopted Chip-Based Credit Cards.
Takeaway
So yes, the US has been relying on outdated credit card technology for far longer than it should have. And yes, Visa and MasterCard should have pushed EMV adoption faster at their member banks because it would benefit them more than anyone else in the long run. Would earlier adoption of EMV have prevented a Target-type data breach? No, it wasn’t, although it is just possible that it would be for the so-called.
I still remember the first time it occurred to me that my credit card could be worse—it was the summer of 2007 and I had just landed at Charles de Gaulle Airport in Paris. When I finally got to the airport train station to buy my ticket into the city, the automatic ticket machine flatly refused my Bank of America MasterCard.
As I soon discovered, it was an experience familiar to any American who has traveled to Europe: the moment when an automated teller machine (or a scornful French clerk) realizes that you’re trying to pay with a credit card without a microchip and that you want them to process your card’s magnetic stripe , an easily forged relic of 1950s technology Why the U.S. Has not Adopted Chip-Based Credit Cards.
For years, when it came to credit card security, the United States was the last major obstacle in the developed world, which continued to issue cards with magnetic stripes rather than the more secure EMV microchip cards (EMV stands for the three companies that pioneered the chip: Europay, Mastercard and Visa). Finally, last October, retailers and banks in the United States were pressured to accept and provide EMV cards, beginning a transition that most of the world saw as long overdue Why the U.S. Has not Adopted Chip-Based Credit Cards.
But while there are many other countries that can be used as models for how to go about updating credit card technology, the first five months of the transition to EMV in the United States have been fraught with delays, complications and concerns about whether chip cards will actually help mitigate fraud Why the U.S. Has not Adopted Chip-Based Credit Cards. Particularly confusing was the decision to provide chip and signature cards instead of chip and PIN cards (used in most of Europe), which require people to enter a PIN to use their cards rather than just sign their cards Why the U.S. Has not Adopted Chip-Based Credit Cards.

If the whole point of the EMV transition is to bring US payment technology
up to speed with the rest of the world, why do most US-issued cards still not allow for more secure PIN verification? Or, to put it another way, why is the United States so determined to have the least secure credit cards in the world?
The battles over how America deals with credit card fraud and who pays for it have flown by in part because almost no consumers have ever had to pay any fraudulent charges on their cards. But this idea that cardholders are insulated from the effects of fraud isn’t entirely accurate—dealing with fraud is annoying and inconvenient, and they ultimately pay for fraud through costs like interchange fees and interest Why the U.S. Has not Adopted Chip-Based Credit Cards.
In addition, as industry actors get better at reducing the types of fraud they have to pay for, there is a greater risk that fraudsters will shift their focus from card counterfeiting to activities such as opening new cards under someone else’s name. Dealing with identity theft can be much more costly for individuals than dealing with stolen credit cards, and the legal protections protecting consumers from liability for those costs are far more murky than clear rules limiting an individual’s liability to $50 in most cases. lost, stolen or counterfeit payment cards.
So while the EMV transition doesn’t actually transfer any responsibility to card users to cover the costs of fraud, it could still have a significant impact on them in the long run Why the U.S. Has not Adopted Chip-Based Credit Cards.
Understanding the slow, tortured process of the ongoing transition to microchip cards:
in the US requires a closer look at how all the companies involved are profiting from credit card transactions in different ways. Almost every transaction involves three parties: the retailer that accepts the card, the bank that issues it, and the processor that facilitates payments between the first two parties.
For example, when I try to buy a train ticket at Charles de Gaulle with my Bank of America MasterCard, the French train system, Bank of America and MasterCard get a reduction in payment. But if someone else uses my credit card to make a purchase, those same companies have to figure out how to cover the cost because I, the customer, am not responsible for fraudulent charges. So rather than trying to eliminate fraud, all these different companies are trying to reduce their own liability to pay for it when it happens Why the U.S. Has not Adopted Chip-Based Credit Cards.
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Consider two scenarios involving fraud: If the person using my Bank of America MasterCard to buy a French train ticket is actually a nimble pickpocket who stole my wallet, if I call MasterCard and tell them I didn’t make the purchase, the charge will go away from my account. But most likely, by the time I call, Bank of America has already transferred the money to cover the transaction, so now it’s out of the cost of the ticket because I won’t be paying for it when my monthly bill comes due Why the U.S. Has not Adopted Chip-Based Credit Cards.
But if the person using my Bank of America MasterCard to buy a French train ticket instead uses a counterfeit card made after stealing magnetic stripe data from a massive retail chain’s database, that retailer may have to bear some or all of the cost of the fraud . In these cases, my experience is the same – I’m out of the loop – but they work very differently for the companies behind the transaction.
Since EMV cards are harder to counterfeit—and if they require a PIN, they’re also harder to use if stolen—you’d think Bank of America and other issuing banks and retailers in the United States would be eager to switch to -Secure card technology and stop paying so much to cover fraudulent transactions. But microchips are expensive — so expensive, in fact, that for years banks found it more convenient to pay for fraud than to pay to put microchips in all their customers’ cards, a cost estimated by consulting firm Javelin Strategy & Research at $1.4 billion Why the U.S. Has not Adopted Chip-Based Credit Cards .
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But as the rest of the world continued to upgrade their cards and more retailers like Target and Home Depot experienced massive data breaches, that conclusion became increasingly difficult to justify. “As everyone else migrated to EMV, the US became more of a beacon for global criminals,” explains Jeremy King, international director of the Payment Card Industry Data Security Standards Council Why the U.S. Has not Adopted Chip-Based Credit Cards.
The new technology, which replaces traditional credit and debit cards with magnetic strips for cards with an integrated chip, means new habits – we now “dip” the cards into the terminal slot instead of sliding them in – but it also means increased security and less fraud in store purchases Why the U.S. Has not Adopted Chip-Based Credit Cards.
While a relatively new concept in the United States, chip technology has been widely used in Europe and other parts of the world since the 1990s to combat fraud. Currently, 80 countries are in various stages of smart card migration.
Why is the US so behind?
“We’ve always had really good and strong fraud systems in the United States,” MasterCard product expert Carolyn Balfany tells Business Insider. “Other parts of the world weren’t so lucky. They had less robust security systems, so they had a more immediate need for smart cards and the security they brought Why the U.S. Has not Adopted Chip-Based Credit Cards.”
The US has always had “real-time transactions”, meaning merchants instantly send credit card information to the issuer for verification.
In other parts of the world, there was a delay between when the merchant sent the card information. After you present your card, your information will be stored at the merchant for a full day and not sent to your bank for approval until later that day, meaning fraudsters have had more time to commit fraud Why the U.S. Has not Adopted Chip-Based Credit Cards.
NerdWallet’s credit card expert Sean McQuay echoes this: “The US already had a well-established credit card system and still does today, while Europe has a very nascent system and has never had to upgrade.” He explains to us that upgrading the existing material to be EMV-friendly, it’s expensive, and it’s never really been necessary in the US Why the U.S. Has not Adopted Chip-Based Credit Cards.
He also notes that the physical separation of Europe and the US likely delayed the transition in the states.
However, with card fraud rampant in the US and record data breaches at major retailers, there seems to be more need for EMV today.
woman paying with credit card
A massive data breach at Target in 2013 cost hundreds of millions of dollars. Joe Raedle/Getty Images
Moreover, this move is a step in the right direction towards achieving a global standard when it comes to card payments Why the U.S. Has not Adopted Chip-Based Credit Cards.
“American consumers are increasingly finding it difficult to use magnetic stripe cards when traveling to other countries,” explains Balfany. “Similarly, when international visitors come to the US, they have their smart cards — and their banks expect these smarter EMV transactions — but they’ll end up having to use a less secure payment method Why the U.S. Has not Adopted Chip-Based Credit Cards.”

While the US is gradually catching up with Europe with this technology, it still lags behind in many ways.
In the US, you sign the receipt after dipping the card — in Europe, you dip and enter a four-digit personal identification number, which is more secure than the dip and sign process. Banks may choose to issue cards that require a PIN, but in October 2015 it will no longer be required.
Sources
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