The credit card industry in the United States has been dominated by technology that includes a magnetic strip for many years now. While this is still the dominant method that credit card companies use for their credit cards, it may not be that way forever. Technology known as EMV (Europay Mastercard & Visa), has the potential to replace the magnetic strip in the future. While you may have been hearing about this technology from merchant services reps to invest in new terminals, don’t make the move just yet.
Why is EMV better than Magstripe Technology?
What exactly is EMV and why would credit card companies want to use it instead of a magnetic strip? The primary difference between EMV and the magnetic strip is that EMV cards use an embedded microprocessor chip within the card to encrypt the data for each transaction. This chip is a type of small computer that provides strong security features and other capabilities not possible with traditional magnetic stripe cards. When the card gets close to a reader, it is activated electronically. The chip receives a signal from the card reader and then sends a signal back to authenticate the card. The chip typically has the technology to alternate between verification methods for each individual transaction. For example, sometimes it asks for a pin number and sometimes it will ask for a signature. EMV is considered to be a safer credit card technology because the payment information changes every time. By comparison, with a magnetic strip, the payment information is the same for every transaction. This makes it more difficult for identity thieves to use stolen credit cards.
Another type of chip card technology used for payment is called contactless (a subject worthy of it’s own future article). It works by holding the contactless chip card within a couple of inches of a contactless-capable reader. The reader energizes the chip embedded in the card and allows exchange of data via radio frequency without the card ever leaving the cardholder’s possession
Magnetic stripe cards can be susceptible to fraud through skimming, where a card is swiped through a magnetic stripe reader to record the information needed to use the card for payment. The cardholder gets the card back and is unaware of the risk of fraud. The data stolen from the card can be written to another magnetic stripe card, effectively creating a duplicate that can be swiped to make a fraudulent purchase at an unsuspecting merchant.
How quickly will this transition take place?
Because of the increased protection from credit card fraud, it is inevitable that the United States will adopt this technology but it will take a while. Just to give you a bit of history, back in 2001 3des pin pads were announced as being a necessity to replace less secure pin pads. The full implementation wasn’t completed until 2009-2010. Keep in mind, this was just a pin pad that required a lot less-no new cards, new hardware, new encryption and new programming. With the new EMV technology, issuers will need to issue new cards (they say this new chip embedded card costs about $5 each in comparison to the current magstripe cards at $.05 each), new machines need to be developed and placed, new pin pads and new programming for it all. And the EMV “Standard” as it is called, has yet to even be announced. So, if it took 8-9 years to implement new pin pads, how long do you think EMV will take?
As of right now, processors have till April 2013 to be “ready” to process these transactions so they are implementing the back end. Issuers are gearing up as well and, in fact, some are beginning to issue new EMV type cards to their card holders who travel internationally, where EMV technology is the standard.
There is certified equipment currently available that can handle EMV transactions but, they’ll need to be updated once the EMV standards have been set. Some of them will need a peripheral device attached. So, as a merchant, my advice is to wait it out for a while until it becomes absolutely necessary to get the new equipment.
Card companies starting to implement this technology
Although this technology has been a little bit slow to be adopted in the US, some credit card companies are starting to implement the technology. Many of the credit card companies in the United States are starting to issue cards that have both EMV and magnetic strips in them. This makes it possible for them to use the cards and regular retailers in the United States or with credit card machines that use EMV in Europe. As more people start to use these cards, the technology will slowly be adopted in the US.
· In August 2011, Visa announced plans to accelerate chip migration and adoption of mobile payments in the United States, through retailer incentives, processing infrastructure acceptance requirements and counterfeit card liability shift.
· In January 2012, MasterCard announced their U.S. roadmap to enable the next generation of electronic payments, with EMV the foundational technology.
· In March 2012, Discover announced implementation of a 2013 mandate for acquirers and direct-connect merchants in the U.S., Canada and Mexico, to support EMV.
· In June 2012, American Express announced its U.S. EMV roadmap to advance contact, contactless and mobile payments and plans to begin issuing EMV-compliant cards in the U.S. in the latter half of 2012.
Thanks to the EMV standards, chip card issuers have a uniform standard to help them ensure that the payment cards they give their cardholders will work in EMV compliant acceptance infrastructures anywhere in the world. Merchants and banks can invest in chip card acceptance infrastructures knowing EMV compliant cards have been developed based on uniform standards. Cardholders can feel more confident knowing the security advantages of EMV will help protect them against the risk of fraud anywhere EMV is implemented.
Beginning this October, retailers who process most of their Visa card transactions from payment terminals capable of handling EMV chip-based cards may be able to avoid having a PCI data-security audit on an annual basis – and eventually pay lower interchange fees as well.
In 2015, the card associations will begin to shift liability for card fraud to further motivate compliance of EMV-capable terminals.. For example, liability will be assumed by the card-issuing bank if the card used does not have an EMV chip but the merchant’s payment terminal is EMV-capable. Conversely, merchants will be liable if the card does contain a chip but the terminal is not able to process it.
So, in summary, EMV is definitely coming and merchants simply need to stay informed in order to make intelligent decisions for their business. Hopefully this article has enlightened you regarding this topic.
My name is Michael Saum and I’m a 64 year old semi-retired, merchant services rep. In my current capacity, I write informative, articles relative to the acceptance of credit/debit cards in your business I also offer my comprehensive, FREE, email course, on the subject of credit card processing with NO SOLICITATION or HYPE. You can enroll by visiting the following website:
Expand your knowledge regarding this ever-increasing cost center in your business and end up improving your bottom-line. It will be one of the wisest investments of time you will make in your business that will pay rewards for years to come.
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