Do you remember the Visa commercial in which a busy food market is humming along at a brisk and even pace, only to come to a screeching halt when a single, solitary customer reaches into his wallet to pay with cash?
The cashier and all the other Visa-carrying patrons in the store looked on with impatience and disapproval as he rummaged around for change.
The message, which dates to 2007, was clear: Swiping your magnetic stripe-equipped credit card is infinitely easier and smoother than paying in cash.
However, the convenience to consumers also proved to be an immense convenience to thieves, who could easily clone the cards — or even simply just use it to buy online in card-not-present transactions — and run up astronomical bills.
In 2015, banking and financial services company Barclays released a report that said that card fraud that occurs on United States soil makes up 47 percent of global fraud — even though the country only has 24 percent of the world’s card volume.
Setting New Standards
That said, card fraud is still a major problem around the world. It’s why Europe has largely moved toward EMV, the global payment standard to support contact and contactless transactions. The initial focus has been on chip-and-PIN cards that are harder to replicate or scrape precious personal information off of. EMV cards contain embedded microprocessors that provide strong transaction security features and other application capabilities not possible with traditional magnetic-stripe cards. Unlike magnetic stripes, which can be fraudulently copied and replicated countless times, a chip card creates a unique transaction code that cannot be used again.
The move toward EMV has dramatically reduced losses associated with card fraud in countries where it’s been implemented.
In Canada, debit card service provider Interac has observed a dramatic drop in debit-card skimming fraud, bringing down losses from CAD$142 million in 2009 to CAD$29.5 million just four years later.
And so we know EMV works. The challenge is getting merchants and banks across the world to adopt it.
Let’s take the U.S. as an example. A little over a decade ago, the way European consumers conducted business with retailers changed when the EMV chip technology was adopted throughout most of the continent, ultimately protecting millions of people from fraud. Due to the precedent set in Europe, the United States government launched its BuySecure Initiative, meant to reduce card fraud at home.
As a consequence of that new policy, banks in America began implementing the chip-and-PIN technology in October 2015 and will continue to roll it out throughout the rest of this decade.
A Study by the Strawhecker Group found that regardless of its reputation for curtailing fraud, a good portion of retailers in the United States — whether on the ground or in the air — still have yet to introduce the technology despite looming deadlines for point-of-sale terminal conversion.
Airline Industry Weighs Its Options
The unique challenge to the airline industry is how to manage the shift in the face of other emerging technologies such as near-field communication (NFC), which allows for contactless payments. (Some of NFC’s best-known implementations are for smartphone-based payment apps like Apply Pay, Android Pay or Samsung Pay.)
Eric Canal, Panasonic Avionics’ IFE & cabin systems product management director, said these simultaneous changes have airline decision-makers scratching their heads, wondering whether implementing chip-and-PIN technology is worth it if NFC will soon take over. The decision on what technology to go with obviously has a commercial perspective.
“People want payment gratification — that is, a safe, efficient and speedy way to purchase items,” Canal said. “The more people program their hand-held device for payment, the more the incentive for the airline will be to follow through.”
However, because a substantial portion of the population has yet to adopt contactless payment using mobile apps, a card-present solution still needs to be offered to customers making inflight purchases.
Panasonic Avionics announced in 2014 that the company would begin incorporating EMV-compliant NFC technology in addition to the traditional credit card swipe in its inflight entertainment systems.
“This new technology will allow passengers around the world to personalize their travel experience and intensify their relationship with their airline in incredibly valuable ways. Technologies and their adoption will continue to evolve but we need to equip our customers with options for the future,” the company said. Other suppliers are starting to follow that lead.
Airlines are already in the process of bringing in NFC systems for passengers to use in airports around the world — not to mention the airports’ individual efforts to provide passengers with a more connected experience, according to a survey by airline IT provider SITA. In doing so, the industry could stimulate a cultural shift in how consumers operate as they travel.
“Since Apple Pay and Android Pay are mobile NFC payment apps… for secure payments, EMV cards are being issued as dual interface chip-and-PIN and NFC. This is a strong case for NFC to be used in aircraft environments,” Canal said.
Ultimately, he continued, the best solution for airlines will be to have a reader that supports both EMV and NFC payments: “The two technologies can be complementary.”
“This new technology will allow passengers around the world to personalize their travel experience and intensify their relationship with their airline in incredibly valuable ways.”
IFE & cabin systems product management director at Panasonic Avionics
The Challenge of Technology Adoption
Although Europeans adopted EMV cards rather quickly, their American counterparts have been more reticent to follow suit.
Only about 670,000 merchant locations in the U.S. — approximately 30 percent of all retailers — currently take EMV payments, according to the Smart Card Alliance. That leaves a sizable portion of retailers absent of the appropriate technology. This, despite the liability shift that took effect Oct. 1, 2015 that made merchants — and not card issuers — responsible for fraud if conducted on non-EMV systems.
“There are so many different variables for why America has been slow to respond from changing the way we do things here as a culture, to getting all the banks and merchants to follow through,” Canal said.
That discord has been further amplified by the cost of installing EMV-compliant point-of-sale terminals, which Canal said runs between $500 and $1,000 per unit. For airlines, installing EMV terminals in planes — while crucial and effective — is even more complicated and expensive. “A chip-and-PIN requires the implementation of a secure PIN-entry device, and the security aspect of this PIN-entry device is significant because you have to store the keys securely, in a secure element, in order to have the secure element functional at all times,” Canal said.
Inflight sales terminals will need to be replaced entirely due to several technical requirements — most notably battery backup, unique-key storage, electromagnetic shielding and a PIN pad. These costs are specific to airlines that will surely increase their per-seat costs. The retrofitting of each plane would also require significant time, thereby affecting each plane’s flight hours. “It’s much different in terms of time and cost inserting 300 of these in an aircraft as opposed to the ones you see at a Wal-Mart, Tesco or Carrefour” he said.
Thus, industry leaders say finding the technology that will stay the course of time is critical. This change will most likely move towards NFC — the form of contactless communication used between smart phones and tablets.
Bringing the NFC Boom to the Plane
The challenge with NFC on an airline had been in creating a device that is suitable for inflight transactions. Canal said devices installed on planes aren’t currently allowed to emit NFC’s operating frequency at signals above a certain level.
According to Canal, original equipment manufacturers (OEM) for each plane have electromagnetic interference requirements that are in direct conflict with EMVCo and the card brand’s NFC requirements. Ultimately, that means a balance will eventually need to be struck between the two industries’ requirements.
“On top of that, each aircraft OEM has its own set of safety requirements that we have to meet in order to bring NFC to the inflight environment,” said Canal.
With all this talk of NFC, where does that leave chip-and-PIN?
Canal said he believes Panasonic has the capability to create a device suitable for both technologies.
Even though technology challenges are mostly solved, the commercial and regulatory hurdles are slowing down adoption. Consumer demand will be the key driver for the timeline of addressing those issues.