The great interoperability myth

BabelfishA question I’ve been asked many (many, many) times about payment cards is why do we keep old acceptance components on the card once we’ve migrated to EMV? For most you should read this as ‘why keep a magstripe?’ but it could equally be ‘why have embossed numbers?’ and ‘why have the PAN written on the card?’. There is a simple answer for these, but also a much more complex discussion.

First of all, the simple answer. As markets don’t all move to new technology at the same pace (re: US EMV migration) in order to ensure that one type of card can work everywhere, older interfaces are retained – this is called interoperability, or the ability for cards to work in infrastructures at different technology levels. If you were a mathematician, you’d call this working to the lowest common denominator. If you’re a banker it means that you’re making a risk-based decision to offer transaction availability (convenience) over fraud risk (security). It also means that MasterCard (and/or Visa, Amex, Discover, CUP, JCB…) can truly claim that the same card can be accepted at more than 35.9million locations worldwide [here] and talk about lots of other big numbers.

For the vast majority of cardholders, global interoperability is an unnecessary luxury as they will never use their cards in a face-to-face transaction beyond their own national borders [here], and of those adventurous types travelling, most will only reach neighbouring countries or travel within a region. This is why the first EMV terminals deployed in the US were on the borders of Mexico and Canada. It’s also why Belgium’s banks can happily close off acceptance of their Maestro cards beyond the borders of Europe as it affects only a minuscule percentage of their cardholders.

However, one of the additional reasons that we retain the magstripe on EMV cards is because the banking industry has used it for other things – the primary one being accessing an EMV-enabled ATM. Typically EMV-enabled ATMs use motorised readers and ‘swallow’ the card so that it is held in the reader during the transaction. To stop those of an adventurous nature from trying to shove other things into the card reader, such as library cards, bus tickets and anything by Panini, these readers have a small gate just inside that is triggered by presence of, and reading the first character of the bank card’s magstripe. Although we’re seeing first examples of non-motorised, separate readers from EMV cards in the Nordics, they’re not widespread. Other examples of magstripe usage include easier card orientation, entrance to bank vestibules, transaction fallback and locking mechanisms on hybrid dip readers on some POS terminals. This is all interoperability on a smaller scale.

Finally, legacy card data interfaces such as magstripe, PAN printing and embossing remain as the schemes/brands that manage global card franchises insist that they do so. Interoperability plays a large part in their USP – why use domestic debit when our debit works here, here and here as well! This is at least until the US EMV migration is complete as these US-based organisations are reluctant to kill the tool that is most prevalent in their home market. So a laser-printed, chip-only card for international use is still some years away as a mass market product. And herein lies the fundamental problem with the four-party cards system, as the Issuer and Acquirer may be on significantly different acceptance technologies and so the more advanced issuer has to ‘dumb down’ or face non-acceptance. All of this means that interoperability at a global level has a place, but we all pay for the benefit of a relatively small number of cardholders to be supported. So yes, interoperability makes sense, but should it really drive risk management in the way that it does?

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s