Payment card world to split?

Interestingly, China UnionPay, the Chinese interbank fund transfer and payment services provider, announced that in 2010, its bankcard transactions jumped 46% to CNY 11.2 trillion (EUR 1.2 trillion). Totally, China UnionPay has 2.4 billion cards distributed in China, which means the average spend per card is CNY 4 670 (EUR 520) per year.

From a technology standpoint, already 63% Visa Europe cards are EMV (Chip-and-PIN) compliant, and only 10 million of them are contactless. In China, a large majority of China UnionPay cards are still magstripe based, and only 9 million cards are smart cards.

With such giants having diverging technology positions, we face and increasing risk of incompatibility. In Countries that support EMV cards, all (or close to all) POS terminals support EMV cards, and they are all supposed to support magstripe cards for international consistence. In reality, in many cases, holder of magstripe cards often see their cards refused in Europe, or in other EMV-converted countries (cf. Smart Insights Weekly #11-03). Payment organizations in Chip-and-PIN countries establish that most of the frauds they now face come from card not present transactions and payments in countries using the magstripe.

As an answer to this, the Belgian Ministry of Economic Affairs, has decided to prohibit Belgian Maestro card holders to use their cards with the magstripe technology. If such a decision would be generalized, the world would quickly evolve in two zones, according to the banking card technology, chip or magstripe, with little possibility for travelers to use their cards from one zone into the other. Of course, the smart card industry sees this as the best trigger to overcome the last resistances to EMV conversion.

Thierry Spanjaard

Chief editor

Smart Insights