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visaIf you've traveled to Europe in the past ten years and encountered problems when you tried to use a credit card with a magnetic strip on the back, you're not alone. But Visa wants to make sure that never happens again by pushing the adoption of a universal AND more secure credit card technology in the United States.

An announcement this month outlined measures the credit card giant is planning, with the goal of getting more consumers to switch to cards that contain a computer chip rather than the traditional magnetic strip. But before Americans can use the cards in retail establishments, merchants must install the point of sale terminals that can read the chip-based cards.

EMV (an acronym which originally stood for a consortium made up of Europay, MasterCard and Visa) is a global standard for credit and debit payment cards based on chip card technology. At the end of 2010, more than 1.24 billion EMV compliant chip-based cards were in use worldwide. Widely accepted and used in Europe and around the world, the cards have yet to gain much traction in the United States. Mostly because there are so many different credit card issuers here.

Also known as "smart" cards, EMV chip-based payment cards contain an embedded microprocessor, which is a small computer chip containing the information needed to make a payment with the card. Protected by security features, these chip cards are more secure than the magnetic stripe payment cards that most people in the United States take for granted. Here's how it works.

When processing a payment card with a magnetic stripe, only data containing the card number and valid dates of use is transmitted, leaving the transaction open to fraudulent activity. But chip card transactions exchange dozens of pieces of information between the card, the POS terminal, and the acquiring bank's host, allowing a significantly higher level of security and verification. This means that stolen and counterfeit cards would be useless at the point of sale, lowering costs for merchants, card-issuers and consumers alike.

The time seems to be right for adoption of the new technology, as American financial institutions have recently begun issuing chip-cards to customers who are planning international travel. And some large merchants (like McDonald's) have already started installing the chip POS terminals.

So how will Visa convince banks, credit unions, payment processors, and all kinds of merchants to change to these terminals? Their announcement appears to be part carrot and part stick.

Beginning in 2012, merchants who can document that they are using POS terminals that can accept the more fraud-proof cards won't be required to submit to Visa's annual mandatory audit. A significant incentive, as these audits used to detect fraud are often quite costly for merchants. And the addition of this chip technology will also speed up the adoption of mobile payments and associated innovations, which will be a plus for companies riding the wave of smart phones and tablets.

And no later than April, 2013, Visa will require processors in the United States to be able to support merchant acceptance of chip transactions. The adoption of this new technology will challenge merchants financially, but decreased fraudulent activity in the long run will likely present significant savings, creating a win-win situation for the credit card industry and for consumers.


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