January 2014 Alliance Member Bulletin
Welcome to the Bulletin
Welcome to the first issue of the Alliance Member News, a monthly publication that will enhance our Smart Card Talk Newsletter, which will now be published quarterly. We have revamped our e-mail communications so that you receive consistent, relevant news and information in an easy-to-read format that will help you make the most of your membership.
Executive Director’s Corner
After Target Breach, Questions On Why The US Is So Behind the Rest of the World
The aftershocks of the massive data breach of an estimated 40 million credit and debit cards suffered by Target (the second largest mass merchandise retailer in the country) have triggered a national conversation on payments security. During the media frenzy that followed, one question kept being asked, and the NBC Nightly News with Brian Williams did an excellent news report on it. The question was “Why is the U.S. market so far behind the rest of the world in using chip technology?” I will try to address this question and share my thoughts about how this event is going to reshape the next two years’ path to adoption of EMV chip cards in the U.S.
This question is the most vexing and hardest for most outside observers to understand. It is also the most difficult to explain in simple terms, because it requires unraveling all the layers of how card payments work and trying to “defend” the business practices that have evolved over 30 years. These business practices have created a highly efficient network that handles billions of transactions per day but harbors an Achilles heel–the static personal account number (PAN) stored on an unprotected strip of magnetic material. In other countries that have invested in EMV, fraud rates were considerably higher, the profit from fees generated from merchants and processors were significantly less, and the banks in these countries controlled the cards, the terminals, and the processing, so they owned the entire ecosystem and could move entirely on their own cost. Here, the merchants or their processing partners own the terminals, the banks own the cards, and the processors have no exposure to the fraud that happens around them. The networks that process these transactions have gotten faster, smarter, and more reliable, but they are able to detect a counterfeit card only after a pattern of abuse is detected.
The “why not move to chip like everyone else” question comes down to economics. It has been cheaper to accept the fraud, which amounts to about 6 cents of every $100 spent, than to replace the 1.2 billion cards in the market and more than 10 million POS devices. The payments brands and issuers can’t financially incent the merchants to invest in chip readers to solve a mag stripe problem they did not create but now want to be rid of, without tinkering with the lucrative fees issuers would have to give up, which has kept alive, long past its expiration date, the outdated, insecure magnetic stripe system.
The events of the last few weeks do not put merchants in a very comfortable position defending a further delay in moving to chip technology on the basis of cost. It would be naïve to think that what happened to Target is not going to happen again. The persistent cyber attack threat is bound to get more serious as the window of opportunity for criminals to cash in on the weak security of the U.S. payments market gets smaller. So merchants have few choices. One approach is that they can try to delay the timeline for the fraud liability shift and negotiate with the brands to increase the incentives to accelerate their investment in EMV. But that leaves the merchants exposed for a longer period of time to the same harsh financial perils and brand equity losses that Target will have to absorb.
I think the more prudent approach would be to advocate for an agreement that would guarantee long-term financial benefits for merchants (i.e., lower interchange) but change nothing in the short term. This would allow issuers and merchants to realize the efficiencies and fraud reductions from EMV in the short term, and provide the merchant payback in five to ten years. Let’s hope that something positive comes from this terrible incident that has damaged the respect and reputation of the entire payments industry, and that consumers regain confidence with their trusted brands.
In The Spotlight
Cubic® Transportation Systems, Inc
A 2013 Smart Card Alliance Company of Excellence (COE) recipient, Cubic® Transportation Systems, Inc., is a leading integrator of payment and information technology and services for intelligent travel solutions.
What is your company’s business profile and its offerings?
Cubic® Transportation Systems, Inc., is a leading integrator of payment and information technology and services for intelligent travel solutions. Cubic delivers integrated systems for transportation and traffic management, delivering tools for travelers to choose the smartest and easiest way to travel and pay for their journeys, and enabling transportation authorities and agencies to manage demand across the entire transportation network–all in real-time. Cubic specializes in design, development, manufacture, supply, installation, integration, services and information. Services provided by Cubic include on-site management, central systems, operations support, patron support, business support and field services.
What role does smart card technology play in your business?
Contactless smart cards are the primary fare media in the majority of Cubic’s fare collection and revenue management deployments. This includes San Francisco’s Clipper card, London’s Oyster card, Los Angeles’ TAP card, and a dozen other domestic and international programs. Cubic specializes in high-volume, high-capacity networks that demand high-speed transaction processing, and the contactless smart card was developed for just this purpose.
What trends do you see developing in your market?
In recent years, the banking and mobile phone industries have adopted contactless/proximity technology, opening the door to new forms of cross-industry collaboration. Advancements in network communications and overall bandwidth are also enabling the centralization of processing functions that previously demanded distributed architectures. With these developments, new commercial opportunities are presented across transportation verticals, enabling convergence across rail, bus, ferry, toll road, taxi, and parking applications.
What must you overcome to leverage those trends?
Careful transition management will be required to reap the benefits of such convergence. Since the majority of large metropolitan area public transportation systems have established contactless programs that are already conducting millions of transactions every day, the single greatest challenge is enabling the shift in technical and commercial models without disrupting at-scale operations.
With over 40 years of experience assisting agencies through the migration from tokens to magnetic cards to contactless smart cards, no company is better positioned to support agencies through this process than Cubic.
Visit Cubic at http://cts.cubic.com.
Smart card technology will have excellent visibility at the HIMSS ‘14 Annual Conference and Exhibition, in Orlando, Florida. The Health and Human Services Council is hosting a full-day pre-conference symposium, ”Privacy and Security: Challenges and Opportunities in Healthcare Identity,” that will feature Randy Vanderhoof, Michael Magrath (Council Chair, Gemalto) and David Batchelor (Council Vice Chair, LifeMed ID) as speakers and session moderators. The Council identified and recruited speakers, with strong presence from healthcare organizations who have implemented smart card initiatives, including: Memorial Hospital; Resolute, an Innovation Center for Vanguard Health; Seattle Children’s Hospital; Southwest Texas Regional Advisory Council for Trauma. Additional information on the symposium can be found on the HIMSS ‘14 web site.
EMV 101 Webinar Scheduled
The EMV Migration Forum is holding a webinar on EMV 101 on Wednesday, January 22, from 1 p.m. to 2 p.m. EST (10 a.m.–11 a.m. PST) to provide essential foundational education to the payments community. Free registration is available at https://www4.gotomeeting.com/register/294088327.
Guy Berg, senior managing consultant of MasterCard Advisors, will lead the webinar, which will provide a comprehensive overview of EMV chip technology, with topics including:
- EMV payment processes and how they differ from magnetic stripe transactions
- EMV chip security and risk management features
- Options for card authentication, cardholder verification and transaction authorization
- EMV specifications and references
- EMV implementation status – globally and in the U.S.
If room, add: The webinar will be recorded and added to the extensive library of EMV resources found at http://www.emv-connection.com, which includes additional tutorials and educational information specifically for issuers, merchants, acquirers/processors and consumers.
Have You Registered?
The Smart Card Alliance 2014 Payments Summit will be held Feb. 5-7 at the Grand America Hotel in Salt Lake City, with pre-conference workshops on Feb. 4. Register and learn more.
CSCIP/Payments Exam Registration
Registration ends Friday, Jan. 17, for the CSCIP/Payments training class and certification exam scheduled for next month in Salt Lake City. Register today.
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Welcome New Members
- Bank Solutions Group, Associate member
- CA Technologies, General member
- Euro Tech Sales, Associate member
- Initiative for Open Authentication, Associate member
- TransLink, Government member
- Advanced Card Systems, Ltd., SCALA general member
New CSCIP Recipients
- Brock Boss, WMATA
- Solmoraine Guzman, Smart Card Alliance
- Ahmad Shinwari, WMATA
New CSCIP/Payments Recipients
- Manuel Albers, Euro Tech Sales, LLC
- Bisirat Amanuel, Gemalto
- Rabi Bajaj, MasterCard
- Manish Deliwala, America Express
- Carlos Alberto Duque Vasquez, Xtrategies
- Venugopala Narayanappa Medahalli, CSC
- Phillip Taylor, TSYS
Our full color, end of year publication is now available on our website. Download it and read it at your convenience, or view it today.