Wells Fargo & Co., the U.S. bank with the most branches, is testing microchip-embedded credit cards with frequent travelers to address complaints of customers who have trouble using their cards abroad.
The pilot program to be announced today marks the first effort by a major U.S. bank to deploy Visa Inc. credit cards with so-called EMV-chip technology, which has become a standard in Europe and much of the rest of the world, according to San Francisco-based Wells Fargo.
“It’s not an infrequent message from our customers of the acceptance challenges they have when they go overseas,” Eric Schindewolf, vice president of product development for Wells Fargo’s consumer credit-card unit, said yesterday in a phone interview. “We want to remain top-of-wallet, wherever our customers are.”
The lender is preparing to notify 15,000 customers it identified as frequent travelers, including college students and clients of its private bank, that they’ve been invited to participate in the pilot. The cardholders will receive the EMV cards in the middle of the year.
The U.S. is among the last developed nations whose payment system relies primarily on cards with magnetic stripes and hasn’t yet adopted EMV. Standards for the technology are managed by EMVCo, which was formed in 1999 by Europay International, Mastercard Inc., based in Purchase, New York, and San Francisco- based Visa. American Express Co., the biggest U.S. credit-card issuer by purchases, is also an EMVCo member.
“There’s a widespread consensus around the world that it’s a more secure” payment technology, said Gwenn Bézard, an analyst at Aite Group, a Boston-based research firm.
The EMV chip creates a “dynamic cryptogram” that prevents the use of fraudulent or cloned credit-cards, Schindewolf said. Wells Fargo’s EMV cards still will carry magnetic stripes for use in the U.S., which leaves the embedded data more exposed to a type of fraud known as skimming.
Almost 10 million U.S. consumers experienced credit-card acceptance problems abroad in 2008, costing about $4 billion in lost transactions for merchants and $447 million in revenue for card issuers, according to a 2009 study by Aite.
A common problem facing U.S. consumers is that some merchants abroad are unfamiliar with magnetic-stripe cards and may refuse to accept them, Schindewolf said. Some self-serve kiosks outside the U.S. aren’t equipped to accept payments with magnetic-stripe cards, he said.
The Wells Fargo program represents a “half-step” in catching up with payment technology ubiquitous in the rest of the developed world, said Brian Dodge, spokesman for the Arlington, Virginia-based Retail Industry Leaders Association, a trade group for the retail industry.
“The system used in the United States is similar to that used in North Korea,” Dodge said. “Any system that reduces fraud is a win for consumers and a win for retailers.”
The United Nations Federal Credit Union was the first U.S. lender to roll out EMV when it sent 5,000 cards to its most affluent members in October. The Long Island City, New York- based firm plans to expand the program to 75,000 members within the next year, said Merrill Halpern, assistant vice president of card services.
Canada is converting to EMV technology. All cards and automated teller machines must be compatible with the technology by Dec. 31, 2012, according to Catherine Johnston, president and chief executive officer of ACT Canada, which represents banks and payment networks.
U.S. consumers will see more banks testing the market for EMV-ready cards over the next year, Bézard said. “You’re going to see more small steps like that.”
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