EMV cards are entering the U.S., thanks to cardholders exiting it.
This week, Travelex Currency Services Inc. began issuing more secure chip and PIN prepaid cards at its 180 U.S. retail sites, a tune-up for broader distribution to about 2,000 retail banking partners — such as U.S. Bancorp and HSBC — in early 2011, said Jon Dario, the company's president and North American currency services regional division director.
The target, for now: Americans charging abroad, a market expected to pick up along with the economy.
In countries that use EMV Integrated Circuit Card Specifications, U.S. cardholders are akin to second-class citizens, analysts said; it's not uncommon for some European merchants to accept only chip and PIN-enabled cards.
In a survey by the Boston research firm Aite Group LLC that was published last year, 62% of the 1,019 U.S. magnetic stripe cardholders who had traveled abroad stopped trying to use it during the trip. Perhaps more importantly, many used that card less often upon returning.
"People have been clamoring for it; we have been working on the development of this product for more than a year," Dario said.
Travelex is one of the largest issuers of foreign currency cards in the world.
The MasterCard-branded prepaid cards can be loaded with euros or British pounds. The card carries no initial or ATM fees. West Suburban Bank in Chicago is the issuing bank for the Cash Passport cards.
It's been a struggle for EMV cards to catch on in the U.S.
Other countries have moved to EMV cards for the safety benefits, but banks here oppose the format, saying the expense of replacing millions of cards and readers is prohibitive.
Still, this latest move may catapult the technology outside a small circle already using it in the U.S.
"I think any solution provided by any company or foreign bank helps motivate the U.S. market," said Jack Jania, the vice president and general manager of secure transactions in North America for the Dutch smart card manufacturer Gemalto NV.
"What you are actually seeing now is the first steps in the rollout process. … And you also have the merchants. Wal-Mart has been very vocal at supporting EMV this year."
Gemalto has been working with the United Nations Federal Credit Union, which in October sent out 7,000 chip and PIN platinum Visa Inc. cards to its members, who come from — and go to — all corners of the world. Those cards are now active.
The technology is also making slow inroads into usage domestically.
All Wal-Mart U.S. payment terminals are able to accept chip and PIN transactions.
JPMorgan Chase & Co., meanwhile, has taken a very small, tentative step toward EMV, announcing plans to offer an EMV card for U.S. currency.
That card is aimed at residents of other countries who want to conduct transactions in U.S. dollars.
In an outlook set to be released Monday, Aite argues that financial regulatory reform will drive the U.S. to EMV.
By 2015, or before, the U.S. will see either the Federal Reserve or Visa or MasterCard Inc. enact a mandate for chip and PIN, predicted Gwenn Bezard, co-founder and research director at Aite.
Issuers have incentive to cut down on risk by using the safer chip and PIN cards in light of debit interchange regulation that will cut down on their profits.
"Issuers have an incentive to shift the liability back to the merchants and use chip and PIN to drive the cost back," Bezard said. "I think the Durbin amendment is creating a powerful reason for issuers to take a hard look at cost."
Not everyone is convinced, however, that EMV technology will move past Americans traveling in Europe.
"It bridges the gap," said Brian Riley, the research director for bank cards at TowerGroup in Needham, Mass.
But "I don't think people are running out to grab one."
He said EMV still doesn't address the problem with card-not-present transactions.
Riley said there are other cards now being pilot tested — such as Dynamics Inc.'s card that can rewrite the mag stripe with the touch of a button, and display one-time security codes — that better address those issues.
"It's really founded on French technology … that is fundamentally 25 years old," Riley said.
"It's a stopgap. It's like going into the EMV world, from where we are at today, is the equivalent of buying a 1972 Impala."
