If you’ve been to Europe in recent years, you’ve probably noticed that debit and credit cards are different over there. The cards themselves have a small square gold chip embedded in them, and nobody signs for purchases. Instead, they enter their four-digit personal identification number (PIN). Actually, this is the case not just in Europe; it’s also widely used in Asia and parts of Latin America. These countries and regions have adopted so-called “Chip & PIN” technology mainly because it offers better protections against fraud.

As Visa itself put it in a press release last week:

Chip technology greatly reduces a criminal’s ability to use stolen payment card data by introducing dynamic values for each transaction. Even if payment card data is compromised, a counterfeit card would be unusable at the point of sale without the presence of the card’s unique elements.

Credit card security costs

Chip & PIN doesn’t come cheap. The credit cards themselves cost a little more to produce, but the real burden comes from having to upgrade the entire payments infrastructure. That’s one thing in Europe, where each country tends to have a population ranging from a few million to a few tens of millions. It’s quite another in the United States, where there are so many more people. Imagine the cost of swapping out every credit card terminal in the country.

Well, that money’s going to have be found anyway pretty soon, because near field communication (NFC) “contactless” payments are gradually but inevitably taking off. NFC payments occur when you wave your card or smartphone near a terminal rather than hand it over to a clerk or waiter for processing.

So Visa has decided to seize the opportunity to introduce Chip & PIN at the same time as NFC. It’s doing so by incentivizing merchants to buy the necessary new technology. This is a three-step process that culminates, in October 2015, with Visa shifting some forms of fraud liability from itself to those merchants who haven’t adopted chip technology. That’s quite an incentive.

Credit card companies pivotal

Of course, Chip & PIN can only take off in this country if credit card companies issue cards with chips. Few have done so yet, and those that have (including American Express, Chase and Wells Fargo) have naturally targeted business and other regular travelers, who often experience problems with credit card use in Chip & PIN territories. Just last week, Citi announced that it was to launch its Citi Corporate Chip & PIN card.

So will card issuers do the same for purely domestic customers? The chances look good. Anything that makes credit card use more secure has to be a good idea, providing the costs don’t outweigh the benefits. Up until now, those costs have been too high, but if a new processing infrastructure has to be introduced anyway, then the whole equation changes. So stand by for Chip & PIN.

Published 08/16/11 (Modified 04/20/12)