Chip-and-pin cards come to America, but are they here to stay?

Odds are that upon hearing the news that major U.S. card issuers, including Chase, Wells Fargo and U.S. Bank, are beginning to offer to offer chip-and-pin credit cards, your reaction will be somewhere along the lines of, “A what?” or, “What took so long?” – and understandably so.  Already the standard in Europe, chip-and-pin credit cards prevent fraud at the point of sale by requiring that users enter a four-digit PIN number that must correspond to a microchip embedded within the card.  Until now, however, they haven’t had much of a presence in America.  So, why now?  And are these cards here to stay?

European Influence

In December 2010, the European Payments Council passed a resolution recommending that credit card networks, like Visa and MasterCard, limit the use of magnetic stripe credit cards to “exceptional cases” and allow European banks to issue cards without magnetic stripe compatibility and/or refuse so-called magstripe card transactions.  While this resolution has demonstrated little practical effect and certain automated systems, like train kiosks or vending machines, remain essentially the only places in Europe that American magnetic stripe credit cards cannot be used, the unveiling of chip-and-pin credit cards by the three major U.S. issuers is clearly a reaction to Europe’s increasing reliance on the technology.

In short, travellers are starting to worry that their credit cards won’t work overseas, and issuers are responding.  In the immediate future, chip-based cards will only be available to select customer groups, such as frequent travellers or high spenders, depending on the issuer.  For the rest of us, a no foreign transaction fee credit card therefore remains the best bet when travelling abroad.  

Visa’s Role

Still, wider rollouts of chip-and-pin cards are planned, according to issuer statements, and it’s now likely that some form of the technology will indeed take hold in the U.S., given Visa’s announcement last week that it will speed up plans to develop the infrastructure needed to support chip-based payments.  Visa, recognising both the need for international credit card compatibility and the promise of smartphone-based contactless payments, says it will relax costly data security standards (PCI) for merchants who enable chip-based contact and contactless payments and will shift fraud liability for credit card transactions from the card issuer’s bank to the merchant’s bank when merchants cannot process a customer’s chip-based card.

Contactless Payments

All of this points to a shift away from magnetic stripe cards toward chip-based payment technology.  Given that the U.S. has already missed the boat on the more advanced pieces of plastic, however, chip-and-pin is more likely to be adopted here as it relates to mobile-phone-based contactless payments.  In other words, we should expect an increasing focus on the Near Field Communication technology that is expected to be found on most next-generation smartphones.

Though NFC is a derivative of the Radio-frequency identification (RFID) that fuelled previous failed attempts at contactless payment methods in the U.S., it reduces the range of communication between an enabled device and a merchant’s reader from a few meters to four inches.  This alone alleviates many of the security concerns that enveloped previous contactless payment attempts.  

The other big difference is the amount of interest and money invested in NFC by major corporations, such as Visa, AT&T, Verizon, etc.  The support of these companies together with the adoption of NFC by phone manufacturers like Apple should lower the barrier to universal use faced by previous efforts.  These companies are putting the technology in the hands of consumers via their cell phones, which are ubiquitous, and are enabling them to use it for purposes other than purchasing.  NFC can turn your cell phone into an aeroplane boarding pass, a coupon, or a business card, among many other things.


As a result, the answer to the question of whether chip-and-pin cards are here to stay has to be “sort of.”  Chip-and-pin’s U.S. presence is obviously growing, but it doesn’t appear to be the end-game for the U.S. payments industry, at least not in the form used in Europe.  That distinction would have to go to contactless mobile payments that use NFC chips to quickly and securely process payments.  Ultimately, this shift can only be viewed as a positive, given that it should further diminish the prevalence of fraud from the already-low 0.05% of credit and debit card transactions it currently affects.

Odysseas Papadimitriou is the CEO of Card Hub and an industry veteran.  Card Hub is a leading online marketplace for all types of cards including 2nd chance credit cards and no fee credit cards.