US Credit Cards May Not Work

US Credit Cards May Not Work

 US credit cards may not work- Almost 10 million U.S. cardholders experienced credit card acceptance problems abroad in 2008, costing banks $447 million in lost revenue, according to a study released last year by Boston research firm Aite Group. The problem: The United States is one of the few developed countries that has not adopted the EMV standard.The standard is managed and maintained by EMVCo, which was formed in 1999 by Europay, MasterCard and Visa. One of the most recent converts to the technology is Canada, where merchants face a March deadline to have the requisite hardware in place.

As of September, there were 1.1 billion EMV cards in circulation worldwide, according to EMVCo.

EMV-chip cards are less prone to fraud. The magnetic stripe on regular cards holds unencrypted data that remain static from one transaction to the next. An EMV card exchanges data with the card reader, producing a digital signature unique to each transaction.

"There is no way that you can actually clone the EMV card," said Jack Jania, general manager for secure transactions at the North American offices of Gemalto, the French company that is the world's largest maker of smart cards. "Every one has its own unique key. Without it you can't run the cryptographic algorithms that align with your particular account."

Credit card issuers and merchants in the United States haven't embraced EMV in part because the cards are more expensive than their magnetic-stripe counterparts and the cost may exceed any savings from a reduction in fraud, says David Robertson, publisher of the Nilson Report, an industry newsletter.

U.S. banks that issue Visa and MasterCard credit cards wrote off about $900 million in fraudulent charges last year, representing less than one-tenth of 1 percent of total card spending. The issuers are also reluctant because EMV might soon be leapfrogged by other technologies.

The first financial institution to switch to EMV in the United States was the U.N. Federal Credit Union, which sent 5,000 cards to its most affluent members on Oct. 18.

"It's going to improve acceptance outside the U.S. and also combat fraud," said Card Services Manager Merrill Halpern. The credit union has about 90,000 members, many of them diplomats who travel frequently.

"We're hoping that what we started is the beginning of a trend," Halpern said.

Source: sfgate

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