Expert: US should adopt EMV smart card standard

In a recent Computerworld report, payment systems expert Aaron McPherson claimed the U.S. Federal Reserve would do well to push the United States toward adoption of the Europay, MasterCard, Visa smart card standard.

Mcpherson recently participated in a panel at the Visa Security Summit, held in April in Washington, D.C. The panel addressed the possible effects of recent debit card interchange reform legislation in the United States, known as the Durbin Amendment.

The legislation was designed to promote financial stability in the United States by increasing the transparency and accountability of the country's financial systems; ending the notion that some companies are "too big to fail" and protecting consumers from abusive financial practices.

According to McPherson, the U.S. Federal Reserve would do well to leverage the Durbin Amendment as a vehicle for promoting a shift to the EMV smart card standard.

McPherson noted that the legislation calls for provisions that enable debit card issuers to recover some of the costs associated with acts of fraud. EMV smart cards, he said, could play an important role in this process.

"As I was preparing for the panel, it became obvious to me that this was the opportunity to finally get the United States onto smart cards," McPherson wrote.

Smart cards have been adopted in many countries as an alternative to traditional credit and debit cards that operate on a magnetic stripe. The EMV standard is a joint effort created by Europay, MasterCard and Visa in an attempt to ensure global interoperability.

According to McPherson, smart cards are much harder to counterfeit than traditional cards. Furthermore, they incorporate an encrypted key that is much more difficult to read than the data contained in a traditional credit card.

This translates into a credit and debit card system that makes fraud far more difficult to carry out. In addition, smart cards enable the generation of unique codes for each individual payment, ensuring that, even if data is captured, it cannot be reused for fraudulent payments.

McPherson noted that smart cards have not yet been adopted in the United States because of already-low rates of fraud. For merchants, the cost of upgrading terminals would not be justified by fraud-related expenses.

With the new legislation, however, this may change. Now, "by allowing card issuers to recover some of the costs of issuing smart cards in the form of higher interchange, it could make it profitable for banks to issue smart cards," McPherson claimed.

The EMV smart card standard was created in 2002. In May 2010, the United Nations Federal Credit Union became the first organization to issue EMV smart cards in the United States.