Wal-Mart to support smartcard payments

Retail giant's reported move to chip-and-PIN transactions could finally nudge others into doing same in the U.S.

Retail giant Wal-Mart Stores Inc. is reportedly planning on making all its payment terminals in the U.S. compliant with a smartcard-based credit card technology that is widely used around the world but isn't common in the U.S.

Wal-Mart's plans were disclosed at a smartcard conference being held this week, and were first reported by Storefront Backtalk earlier on Thursday.

Storefront Backtalk quoted Jamie Henry, Wal-Mart's director of payment services, as saying the retailer was working on making all payment terminals in its domestic stores chip-and-PIN-capable. Henry was reported as having said that signature-based credit-card transactions had become a "waste of time" for Wal-Mart.

Such a move by Wal-Mart would have widespread ripple effects. As the largest retailer in the world, a Wal-Mart decision to support chip-and-PIN could finally nudge card issuers, payment processors and other merchants to adopt the technology.

Wal-Mart could not be reached for comment.

Until now, many enterprises have been reluctant to move to chip-and-PIN systems because of the perceived costs associated with upgrading to the technology. Merchants must upgrade or replace all their existing terminals to accept the smartcard transactions. Banks, too, would need to issue new cards to customers.

Chip-and-PIN systems use smartcards that have embedded microprocessors (or chips) rather than magnetic stripes to store cardholder data. To use the cards, cardholders usually have to enter personal identification numbers (or PINs) when making transactions.

Smartcards are thought to be significantly safer than magnetic stripe cards, even though security researchers have recently demonstrated how chip-and-PIN transactions can be hacked. Most smartcards in use today are based on the Europay MasterCard Visa (EMV) smartcard standard from the major credit card companies.

Though most Europe nations and several other countries moved to the EMV technology a long time ago, the U.S has been a notable holdout, largely because of the cost concerns.

Until recently, the costs of moving to smartcards outweighed the fraud risks associated with signature-based technologies, said Ray Wizbowski, director of marketing strategy at Gemalto NV, an Amsterdam-based smartcard vendor with U.S. headquarters in Austin.

But that equation has begun to change quickly, Wizbowski said. With most major economies already standardized on EMV cards, credit card fraud has begun "migrating" to the U.S in a big way because magnetic-stripe cards represent an easier target, he said.

The fact that U.S. cardholders are finding it increasingly difficult to use magnetic stripe cards outside the country could also prove to be a big driver toward a move to EMV, Wizbowski said.

Wal-Mart's plans represent "very positive news for the industry and consumers as a whole," Wizbowski said. "It means consumers are going to have a secure payment product available to them" relatively quickly, he said.

Wal-Mart's move to adopt smartcard terminals will mean little if card issuers and the major credit card companies don't embrace the technology as well.

Earlier this week, the United Nations Federal Credit Union in Washington became the first financial institution in the country to announce plans to start issuing EMV-compliant credit cards to its customers.

Numerous bigger card issuers are also exploring similar rollouts, according to Wizbowski.

Jaikumar Vijayan covers data security and privacy issues, financial services security and e-voting for Computerworld. Follow Jaikumar on Twitter at  @jaivijayan, or subscribe to Jaikumar's RSS feed . His e-mail address is jvijayan@computerworld.com.

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