What is EMV?

March 05, 2013

The days of the credit card’s magnetic stripe appear numbered, with special-chip, or EMV, credit cards poised to immigrate onto America’s payments landscape.


1. Transaction information is encoded uniquely every time with EMV cards.

2. Several credit card issuers currently offer EMV credit cards.

3. U.S. travelers can run into problems using a magnetic-stripe card overseas

What is EMV?
EMV stands for Europay, MasterCard®, and Visa®, the developers of this technology. EMV has been used in Europe since 1992, and steps are now being taken to make it the standard payment type in the U.S. due to the significant reductions in fraud it produces.

EMV, also known as chip and PIN payments, starts with the consumer being issued a card into which a smart-chip has been embedded. At the time of the transaction, the card is inserted into an EMV-enabled payment terminal, which uses chip technology to verify the purchase and sends a signal to the point-of-sale (POS) device to complete the transaction. At this point, the customer may have to enter a PIN rather than sign the payment receipt, depending on the type of payment card they are using. Other than the insertion of the chip card, the sale takes place as normal – no special action is needed from the merchant. It’s important to note that in an EMV transaction, the Payment card is not given to the merchant. It stays with the customer, providing an additional layer of security.

EMV-enabled card’s, have an embedded microprocessor chip that encrypts transaction data differently for each purchase. Some chip cards require a personal identification number to complete a transaction, while others only require a signature. EMV is widely used in Europe and Asia and is steadily being adopted as the standard type of credit card worldwide. Everywhere, that is, except the U.S.

The status quo is slowly changing. In August, Visa announced several initiatives to encourage retailers to accept EMV-enabled cards. MasterCard followed up with its effort to persuade U.S. ATM owners to upgrade their machines to take the cards by April 2013. And this summer, several credit card companies rolled out chip cards to American globetrotters and business travelers to make overseas purchases easier.

Why Adopt EMV Chip Technology?
There are two key reasons that it’s important to consider adopting EMV chip technology now. The first is, as a merchant, you never want to turn down a sale. Currently, chip cards will still have the magnetic stripe and will be usable in older terminals. However, soon you may find that you are losing sales without an EMV enabled terminal.

Secondly, EMV can help to reduce the incidence of fraud by scanning for counterfeit cards and rejecting them. EMV is a proven technology – chip cards have been used in Europe and Canada for years and have been shown to dramatically reduce fraud. In fact, the major payment brands, including MasterCard, Visa and American Express are planning a ‘liability shift’ where merchants without EMV-enabled terminals will be responsible for point-of-sale fraud losses that could have been prevented with chip technology systems.

EMV: Better security than the mag stripe?
Proponents of smart cards brag about the security EMV cards offer versus the traditional swipe-the-stripe cards. Because the transaction information is encoded uniquely every time, it’s harder for criminals to pick up useful payment data pieces and use them again for another purchase, says Randy Vanderhoof, executive director of the Smart Card Alliance, a nonprofit with a mission of advocating smart card technology.

Compare that with magnetic stripes that contain what Vanderhoof calls “static” data or payment information that never changes. All thieves have to do is lift that information and create a fake card before going on a shopping spree. This can occur with devices that thieves use that only require them to be in close proximity to your card.

EMV cards nearly eliminate skimming scams, says George Peabody, director of emerging technologies advisory service at Mercator Advisory Group. So no more worrying about a server taking liberties with your credit card after a meal, like the Mugs ‘N Jugs waitress in Florida who was arrested on charges of skimming the credit cards of bad tippers.

Unfortunately, head-to-head security comparisons are hard to come by. However, the UK Cards Association along with Financial Fraud Action UK published a report on card fraud in 2011, which found that counterfeit fraud losses in the U.K. dropped by more than 63 percent since 2004. The report attributes the steep decline to the broader usage and acceptance of chip cards in the country.

When using counterfeit mag-stripe cards overseas, criminals preferred the U.S., the study found. For the past five years, the U.S. earned the distinction of the No. 1 country for card fraud committed abroad.

Despite reducing card-present fraud, however, EMV does nothing more to prevent card-not-present fraud, such as online transactions, than the traditional mag-stripe card.

“If we are going to have a massive infusion to replace the infrastructure, card-not-present fraud needs to be addressed early in the process, so we don’t have a blind spot where fraudsters have a wide open field,” says Eric Lindeen, marketing director for Zoot Enterprises, a Bozeman, Mont., firm that provides credit decision and loan origination solutions to financial institutions.

Transitioning to EMV
Small businesses are always looking for cost-effective ways to adopt new technology, and we are here to help. We will keep you apprised of developments as they unfold as we look to keep our clients fully informed and to provide ways to minimize any transition issues or costs.

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