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Smart Cards, Security and Banks

By: Michael Scheibach

Six million U.S. merchants handled more than 70 billion transactions last year, with most transactions following the traditional model: A merchant scans the item(s) and conveys the payment total to the consumer; the consumer pulls out a magnetic-stripe debit or credit card, and then swipes it in a POS terminal. Payment is complete. Money comes out of the consumer’s bank account and is deposited into the merchant’s bank account. More than likely, the consumer is also using a debit/credit card issued by his or her bank.

That’s right. Banks are deeply embedded in the payments process. And as the payments industry changes, so, too, must banks change.

“While banks should keep an eye on mobile as part of their long-term payments strategy, offering the most secure payment cards (i.e., EMV chip-enabled cards) should be more top of mind,” said Randy Vanderhoof, director of the EMV Migration Forum. “Cards are not going away anytime soon. And I anticipate customers beginning to request [EMV cards] as fraud increases and data breaches, like the recent Target breach, continue to occur.” The EMV Migration Forum is a cross-industry group created by the Smart Card Alliance to help introduce secure EMV contact and contactless technology into the United States.

According to a white paper released by the Smart Card Alliance, titled “The Changing U.S. Payments Landscape: Impact on Payment Transactions at Physical Stores,” several new technologies are propelling the payments industry forward, including mobile payment card readers (also known as dongles), tablet POS devices and 2-D bar codes. EMV chip-based payment cards, however, which contain an embedded microprocessor and enhanced security features compared to magnetic-stripe cards, will have the most immediate and significant impact on the payments industry.

The key date to remember is Oct. 15, 2015 — the date merchants become financially liable for card-present fraudulent transactions if they do not have EMV-compliant POS terminals. That leaves less than two years for merchants to upgrade their POS terminals, for banks to upgrade their ATMs and for card issuers to replace magnetic-stripe cards with EMV cards. With some 2 billion credit/debit cards in the United States, this mandated transition to EMV is no small undertaking.
“If community banks continue to issue magnetic-stripe payment cards after October 2015, they could find themselves liable for fraudulent activity,” said Vanderhoof. “For this reason, if they haven’t started planning for EMV chip card issuance, they should start now. This will help them meet upcoming fraud liability shift deadlines and deliver more secure payment products to their customers. Every bank needs to look at its own business case and determine their best path for issuance of EMV chip payment cards to their customers; for example, some may choose to follow the natural reissuance cycle, while others may want to issue to entire portfolios at once.”

In addition to offering more secure payment cards, community banks can also take a leadership role in supporting and educating their business customers about the benefits of contact and contactless EMV chip-enabled cards. Vanderhoof believes that through education, banks will earn more trust and be credited with providing customers with the tools needed to take advantage of the higher levels of security. “Working together,” he says, “banks and merchant customers can determine what will fit best into their particular business.”

For more information or to become involved in the EMV implementation process, visit the Smart Card Alliance at or the EMV Migration Forum at

Michael Scheibach is executive editor of BankNews.

Copyright (c) January 2014 by BankNews Media