Why Feds Want EMV For Govt. Debit Cards

The U.S. government will replace roughly 9 million government-issued payment cards with EMV chip-and-PIN versions early next year in a push to increase awareness and use of the more secure cards, President Barack Obama announced on Friday (Oct. 14).

Between 5 and 6 million prepaid debit cards used for issuing government payments, including Social Security and veterans benefits, will be reissued by Comerica Bank starting in January 2015. Another 3 million cards issued to federal government employees will also be replaced with EMV versions through the General Services Administration’s SmartPay program.

All the cards will be set up for “chip and PIN” security as a U.S. government standard under the upgrade program, rather than the “chip and signature” approach required by Visa and MasterCard for most U.S. retailers starting late next year, according to a White House statement. However, there was no indication that the new cards will actually have the less secure magnetic data stripe removed.

“We applaud the administration for taking proactive and positive steps by adopting PIN and chip technology for government-issued debit and credit cards,” said National Retail Federation CEO Matthew Shay in a statement. “We are committed to finding the right answers with the latest technologies to stop these cyber thieves.”

“We support the White House for recognizing the importance of protecting financial transactions,” said Consumer Bankers Association President Richard Hunt, adding that while EMV is important, “it’s not a total solution to the issue of data security.”

POS devices at all federal agencies that accept retail payments will also be converted to accept EMV cards on a schedule set by the U.S. Treasury Dept. No timetable was given for the federal POS conversion.

Walmart, Target, Walgreens and Home Depot have also signed on to a plan to activate EMV support in their point-of-sale devices by January 2015 as part of the BuySecure Initiative that Obama enacted with Friday’s executive order. The four retailers together operate more than 16,000 U.S. stores, all of which already have EMV PIN pads installed but in most cases not activated.

Walmart said it will activate the system for all its U.S. stores by Nov. 1, 2014, while Target and Walgreens said they will turn on the capability “starting in early 2015.” Home Depot, which sprinted to implement EMV in all stores after a massive breach that exposed 56 million payment cards between April and September, did not give a time frame for activating the new EMV readers.

The rollouts at four of the six largest U.S. retail chains will give a boost to EMV, which despite an October 2015 deadline has seen slow uptake among retailers. Under a mandate by Visa and MasterCard, retailers who experience credit or debit card fraud after next October but haven’t upgraded their POS equipment to accept EMV cards will be liable for the loss. If the bank that issued the card hasn’t upgraded it to EMV, the bank will take the loss.

But despite that October deadline, fewer than half of retailers’ POS terminals are expected to be able to accept EMV cards by the end of 2015, and barely half of U.S. payment cards will have been upgraded by then, according to estimates by the Payments Security Task Force, a banking industry group tracking EMV uptake.

The 9 million federally issued cards are a tiny fraction of the 1 billion credit and debit cards in use in the U.S., so the overall impact of accelerated EMV conversion is likely to be small. However, the Buy Secure initiative also explicitly includes a consumer-education component. Visa said it will spend $20 million in a public service campaign, and American Express said it will launch a $10 million program to help small merchants upgrade their POS terminals.

Small merchants are less likely to know about EMV than large retail chains, which have been making implementation plans for years. “Mom and pop” retailers may also be disproportionately hit by the wave of federally issued EMV cards early next year, since those cards are typically issued to payments recipients who don’t have bank accounts where they can accept their federal benefits as direct deposits.