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Recent data breaches have made U.S. consumers wary of old-fashioned credit and debit cards with magnetic stripes, according to a survey of 1011 American adults conducted by Vision Critical 2014.
The survey found that 64 percent of the respondents are more likely to pay in cash than they were previously. However, nearly the same percentage said they felt that a card with an EMV chip would make their transactions more secure.
Significantly, 37 percent of the respondents said they would prefer a chip and PIN card versus the chip and signature card that most card issuers in the United States are planning to give them. Only about one-quarter of respondents said they’d prefer the signature card. The single highest area of concern for the respondents is theft of the card, which the signature-based cards don’t protect against.
While both types of cards protect against fraud by making it impossible to create a counterfeit card, chip and signature cards do not protect against lost or stolen cards. With a chip and PIN card, you enter a PIN in much the same way as you do now when using your debit card. A chip and signature card requires that you sign for your purchases just as you do now with a magnetic stripe card.
“One of the surprises for us was that they would move more to using cash rather than cards if there’s a breach,” said Brintha Koether, segment director for payments at NXP, the company that makes many of the microprocessors that are installed in cards with EMV chips. NXP sponsored the survey. She noted that this trend was especially strong among younger adults.
The move to cash may have a significant effect on businesses because it turns out that accepting cash is more expensive than accepting credit or debit cards, at least according to research conducted by the Aite Group, which showed that the cost to businesses to accept cash is more than 40 percent higher than it is to accept cards. The reason for the higher costs for cash include a variety of factors including loss from theft, damage and paperwork errors.
Currently in the United States, merchants and banks are in a lose-lose situation. If merchants accept cash, the total cost of sales goes up. If they accept cards, the cost to the bank from fraud losses goes up. That will change in October 2015 when the cost of accepting a fraudulent card moves to the merchant, unless they’re accepting cards with EMV chips. Making matters worse, fraud in the United States is increasing.
“Magnetic stripe fraud is increasing in U.S. as other countries move to chips,” Koether said.
U.S. Consumers Ready to Adopt Chip and PIN Credit Cards, Survey Finds
“As the UK moved to cards with chips, there was a 70 percent increase in fraud in the U.S.,” she noted. “The U.S. has over 50 percent of global card fraud.” Koether said that the primary reason for the increase in fraud in the U.S. is the ease with which criminals can copy the magnetic stripe on the back of a credit card, and then use that to create counterfeit cards.
Koether also said that despite the desire of some younger consumers to move to cash for purchases, cards are still widely used in the U.S., making up more than 70 percent of all non-cash transactions. But she said that consumers in the U.S. are waiting for cards with EMV chips. The survey found “69 percent of Americans believe chip cards will increase security of their financial transactions,” she said.
“There is a trust in technology and [in] their financial institutions to ensure their safety,” Koether said. She also noted that most consumers in the U.S. appear to be unaware of their credit card issuers’ plans, with a large majority saying that they don’t know when they’ll get cards with chip technology. She also said that they’re unaware of what’s called “contactless” chip and PIN cards that use NFC technology to allow the card to communicate with the card reader.
While contactless payment cards have been around for 10 years or so in the U.S., they’re not the same as the new cards that are coming. The new cards will use NFC protocols and will depend on the encryption in the EMV chip when they communicate. The previous version simply depended on the same information as the data on the card’s magnetic stripe.
What’s interesting is that the shift to accepting chip and PIN cards in the U.S. is about 20 percent complete, even though the major banks are still planning to limit their EMV roll-out to chip and signature cards.
The reason, apparently, is that the banks don’t believe that Americans want or will be able to use the PINs, despite the fact that most consumers in the U.S. say that’s what they want and despite the fact that virtually all ATM transactions already use PINs.
It would appear that the lethargic roll-out of chip and PIN EMV cards in the U.S. isn’t really due to the lack of acceptance on the part of customers, but rather the fact that expectations from the market in the U.S. has outstripped the credit card issuers’ planning.
In short, the banks started out down one road, while most consumers are heading down a different road. But I suppose it should be no surprise to know that most of the banks are out of touch with their own customers to this extent.