Travellers to US may be unable to use credit cards

By UK CreditCards.com

The failure of US providers to adopt chip and PIN security measures for point-of-sale (POS) transactions could leave UK travellers unable to use their credit cards when visiting the country, experts warn.

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According to CreditCards.com, American card issuers are taking "baby steps" towards introducing the technology, which was developed by Europay, MasterCard and Visa (EMV). However, card payments in the country remain reliant on the magnetic stripes that have been superseded in Europe by chip and PIN. EMV-compliant credit cards issued in the UK and Europe still contain magnetic stripes, but pressure is now mounting for providers to stop including them.

Magnetic stripes bring 'potential fraud risk'
The main issue with magnetic stripe technology, argue experts, is that it is not as secure as chip and PIN and, as a result, it remains a potential vulnerability for fraudsters to exploit. For UK consumers visiting countries such as the US that are still reliant on magnetic stripe technology, this is a real risk because criminals are able to 'skim' data stored on the stripes much more easily than details stored in a chip. Last month, the UK Payments Association (UKPA) published figures showing that total fraud losses on UK cards fell in 2010, with the increasing rollout of chip and PIN abroad highlighted as one of the reasons why.

Alarmingly, experts warn that the lack of a global standard for card security means that British consumers are at risk even if they do not travel abroad. In 2008, the UKPA, then referred to as APACS, explained, "Chip and PIN has made it harder for fraud to be committed in UK shops and cash machines. Fraudsters have instead had to turn to stealing our magnetic stripe details and PINs in the UK and then making fake cards, for use abroad in shops and cash machines still without chip and PIN protection." It is for this reason that calls have been mounting for a global approach to credit card security standards.

EPC pressuring for move away from magnetic stripes
The UKPA estimates that counterfeit card fraud, from skimmed or cloned cards, totalled £47.6 million in 2010. This has fallen significantly in recent years due to the rollout of chip and PIN. In order to counteract the remaining threat, the European Payments Council (EPC) is calling on European banks to issue cards without the magnetic stripe. The effect of this on those travelling within the European Union will likely be minimal, as 89% of POS and 96% of automated teller machines within the Single Euro Payments Area are EMV-compliant. However, consumers would be unable to use their cards in countries such as the US, where chip and PIN is not in use.

"US banks generally perceive fraud losses to be less than the cost of upgrading the card infrastructure to comply with EMV standards," said US-based payments journalist Bob Sullivan in an article for the EPC. "Until those lines cross, there are no incentives for the US financial system to engage in such a dramatic change."

According to Payments Source, analysts speaking at the Smart Card Alliance's annual conference, held in Chicago on May 4th, said that US migration to chip and PIN technology may be further delayed as an unintended result of the Federal Reserve Board's proposals to place a cap on debit card interchange fees, which are paid between banks for the acceptance of card-based transactions. They suggested that lost revenue from reduced interchange fees would make banks even less likely to invest in the move to EMV compliance.

See related: UK credit card fraud hits 10-year low; Is the alarm over chip and PIN justified?

Published: 9 May 2011