Everything You Need to Know About EMV & the Future of Payment Cards

5.22.2015, Written by Annie Wang
Creative Commons, Attribution Aranami
Creative Commons, Attribution Aranami

Recent security breaches at major retailers have reduced American confidence in the security of their credit card transactions; however, EMV (Europay, MasterCard and Visa), or chip technology, could change all of that. Meant as an anti-counterfeiting measure, EMV relies on a small computer chip embedded in credit cards (rather than a magnetic stripe) to complete transactions. Thanks to modern encryption techniques, this technology has the potential to significantly reduce credit card fraud in the U.S. and around the world.


Defining EMV

Short for “Europay, MasterCard, and Visa,” EMV has been around since the 1980s and was first introduced as a standard technology in 1995. Though EMV has already been adopted in many European countries, the U.S. is still working on adopting it with the goal of creating a global standard for payment.

The chip in an EMV card is meant to replace the traditional magnetic strip that is commonly used on today’s payment cards, and encodes the cardholder’s name, card number, expiration date, and card security code. As many as 70% of credit cards and 40% of debit cards in the U.S. are expected to maintain this technology by the end of 2015.


How it Works

Instead of being swiped, EMV cards are inserted completely into a point-of-sale (POS) terminal and left there for the duration of the transaction. Called “card dipping,” this allows the chip to communicate directly with the issuing financial institution and verify the authenticity of the card. Some POS terminals are also equipped with near field communication (NFC), which allows a customer to make a payment by tapping the EMV card on the terminal.

Verification for an EMV transaction may be either “chip-and-PIN” or “chip-and-signature.” The first requires the cardholder to enter their PIN number when completing a transaction while the second uses a signature for confirmation of identity. Today, chip-and-signature technology is more common in the U.S., however, many locations in Europe are equipped with only chip-and-PIN terminals.


EMV and Card Security

The chip in an EMV card generates a unique transaction code each time the card is used. Unlike the static information in a magnetic stripe, the code is valid for only one transaction. This makes EMV cards much harder to hack and duplicate. Even if a hacker was able to get ahold of a transaction code, they would be unable to use it to create a fake card.

Sixty-nine percent of Americans feel that this technology makes EMV cards more secure. Since the U.S. experiences nearly half of all credit card theft in the world, a problem that amounts to costs of as much as $8.6 billion per year, implementing EMV could amount to significant annual savings for merchants, credit card companies, and banks.


Benefits of Chip Technology

Whether you’re a regular card user or a business owner, upgrading to EMV offers a wide range of benefits.

For Card Users:

  • Access to a standardized system of payment that’s accepted worldwide
  • Longer-lasting cards with less need for replacement
  • Greater security for personal information
  • Future expansion of card features such as “mini-applications” tailored to transactions with specific types of merchants

For Retailers:

  • Better reputation management thanks to increased POS security
  • Ability to accept payments from international customers
  • Fewer fraud-related costs for a more stable budget
  • Ability to implement new EMV-related services as they’re developed


Preparing for the Shift

With 10% of Americans currently carrying EMV cards and 575 million more cards expected to be issued by the end of 2015, U.S. businesses need to be ready to process this new technology. As of October 2015, any business not equipped with EMV-enabled POS devices could be liable for the cost of fraudulent transactions. Referred to as the “liability shift,” this condition of the EMV standard is already in place in many of the 80 countries around the world that are in the process of implementing the technology.


Navigating the Change

Although EMV could take anywhere from three to five years to implement fully, it’s a good idea for businesses to start getting ready now. There are approximately 15 million POS devices in use across the country, and replacing these, as well as ATM terminals and actual credit cards, could cost nearly $9 billion. Individual EMV-enabled terminals can set businesses back anywhere from $500 to $1,000, and the certification process associated with replacement may take as long as eight months to complete.

Until retailers in the U.S. completely adopt EMV, issuers are producing cards with both a magnetic stripe and a chip. However, once new systems are in place, companies will need to educate employees and customers until EMV becomes standard practice. The “card dipping” process results in slightly longer transaction times than swiping, and employees need to be equipped to help consumers understand how to complete chip-and-PIN and chip-and-signature transactions.

The switch to EVM chip cards in the U.S. is a big step forward when it comes to preventing credit card fraud. Once the new technology is in place, merchants and customers can have more confidence in the safety of credit card transactions. International travelers will be able to use their cards at POS devices around the world without fear of their information being stolen. EMV cards have the potential to reduce costs associated with data breaches and preserve the reputations of retailers worldwide.

Do you have a chip card already? Do you feel safer using it than you did with your swipe card?

To learn more about EMV and its impact on today’s retail industry, check out our latest infographic, available on the Field Nation Retail Resource Center.