US: Visa, MasterCard to drive chip cards adoption

According to the card processing companies, this move will eliminate a substantial amount of US credit card fraud. Carolyn Balfany, MasterCards group head for us product delivery, mentions that chips present an extra barrier which makes card not that easy to replicate as the magnetic strips ones.

In March 2014, Visa and MasterCard have revealed plans to bring together banks, credit unions, retailers, makers of card processing equipment and industry trade groups in a group that aims to strengthen the US payment system for credit and debit cards. The initial focus of the new group will be on banks adoption of chip cards.

That comes ahead of a liability shift set to occur in October 2015, when the costs resulting from the theft of debit and credit card numbers will largely fall to the party involved with the least advanced —and most vulnerable— technology. For example, if a bank has updated to chip technology, but the retailer involved hasnt, the retailer will be liable for the costs.

The chip technology hasnt been adopted in the US due to costs and disputes over how the network would operate. Retailers have long balked at paying for new cash registers and back-office systems to handle the new cards. There have been clashes between retailers, card issuers and processors over which processing networks will get access to the new system and whether to stick with a signature-based system or move to one that requires a personal identification number instead. These technical decisions impact how much retailers and customers have to pay — and how much credit card issuers make — each time a card is used.

Ken Stasiak, founder and CEO of SecureState, a US-based information security company that investigates data breaches, says that while chips would be a big security improvement, they wouldnt have stopped the hackers from breaching Targets computer systems where they also stole the personal information, including names and addresses, of as many as 70 million people, putting them at risk of identity theft.