Wells Fargo Moving Forward With Chip And Pin

For years now, Americans traveling abroad have felt like they were visitors from a third world country on occasion when they tried to use their credit cards.  That was because European banks have been issuing more advanced credit cards equipped with microchips that add an additional layer of authentication. These systems were often put in place at unattended machines in train stations and gas stations.  With the chip, American cards simply weren’t recognized, and frustrated travelers were told to seek out attendants.  You can just imagine the fun of trying to communicate with a gas station attendant in Slovenian when you are out of gas and your credit card does not work.

Wells Fargo Gets In The Game

If you are one of those people who is constantly jetting across the pond, you will be interested in this development. According to American Banker [annoying registration required] Wells Fargo is rolling out a trial of Chip and Pin technology to 15,000 cardholders. They are joining a select number of banks and credit unions who are offering chip and pin technology to Americans.  Currently, Travelex Currency Services is offering prepaid Mastercards that offer chip in pin technology.  Also, the United Nations credit union offers such a card to it’s employees.  That makes Wells Fargo the first major bank to jump in.

Waiting For Retailers

This technology will never gain traction in the United States until retailers jump in. Facing a high cost of retrofitting their terminals, there really is no incentive to invest in the upgrade.  Despite this, some merchants, notably Wal-Mart have already equipped their systems to accept chip and pin transactions.

It Is All About Fraud

In the end, the real reason to go to chip and pin is the reduction in fraud. Currently, just about anyone can use anyone else’s credit card.  I frequently have my wife sign for me at restaurants when I am using the restroom or getting the car.  The little known fact is that credit card companies rarely, if ever, match signatures to purchases. Think about that next time you are stuck standing in line at the grocery store behind someone who is carefully inputting their signature into the machine as if it will be preserved for future generations to study.

At the same time, banks really don’t seem to be that interested in cutting down on fraud.  They look at it as a cost of doing business and they are loath to put restrictions on merchants or consumers that could drive transactions to other forms of payment.

Is Chip and PIN Really That High Tech?

Magnetic stripes are an ancient technology, and they are ripe for innovation.  At the same time, the EMV technology used in chip and pin compatible card is not much newer.  It is certainly possible that the replacement for the magnetic strip could be something other than chip and pin:

Current EMV deployments, which remain focused on travelers, are “not intended to be mainstream,” said Brian Riley, a research director in the banking cards practice at TowerGroup. “It’s a select market. I think in the long term, they’ll end up charging fees.”

He added that for the U.S. to eventually adopt this technology makes little sense. “The technology goes back to the days of Jimmy Carter,” Riley said.

“EMV is weak on the hottest-growing segment of card transactions, which is card not present, and until it has a viable solution for that, why adopt this for anything other than interoperability?” he said.

So essentially, credit card companies are focusing on online transactions where the card isn’t even present. Another way to look at this would be to think of the chip as residing in some place other than a credit card. For example, the Isis system I explored last week puts a similar technology in your cell phone.  Why stop there?  You could put the chip in a watch, on a key-chain, or even in apiece of jewelry.

In Conclusion

Currently, compatibility with European systems is the issue in new credit card standards. Going forward, we will be looking at innovations that get rid of the credit card all together and replace it with a system of microchips and personal identification numbers. Whether banks in the United States moves forward with Chip and PIN or leapfrog it with a newer technology, there is no doubt that the next generation of credit cards will look and function different than the ones we have been using for decades.