Download What you need to know about EMV?

What You Need to Know About EMV
Chances are that you’ve seen or heard that “EMV” or “chip cards” are going to become popular very
soon. If you want to know what those terms mean, and what – if anything – you should do about it,
this guide is for you.
Chip Cards and EMV
A chip card – also known as a smart
card – is similar to a regular credit or
debit card. The key difference is that
it has a microchip embedded in it.
The microchip provides capabilities
that regular magnetic stripe cards do
not have.
The most critical feature is that
chip cards are virtually impossible to
duplicate by thieves and other
criminals. The chip on the card
generates a cryptogram that is unique
for every single transaction in order to
verify that it is being made with a valid
card. This heightened security makes
it impractical for criminals to steal and
clone chip cards.
EMV stands for Europay International,
MasterCard, and Visa. EMV is a set of
standards for interactions between chip
cards and point-of-sale (POS) devices.
For all practical purposes, you can
think of EMV, chip cards, and smart
cards as meaning the same thing.
Many regions across the globe have
implemented EMV, including Europe,
Canada, Latin America and Asia. The
United States is in the early stages of
supporting EMV, and is one of the last
major countries to do so.
EMV Quick Facts
•
While there are 1.6 billion EMV
cards in use worldwide, less
than 1% of cards in the U.S. are
chip cards.1
•
There are approximately 12
million POS terminals in the
U.S., and the average merchant
replaces a terminal once every
five to six years.2
•
The introduction of EMV in
Canada helped reduce fraud
losses by 73%.3
What You Need to Know About EMV
Chip Cards at the
Point of Sale
Benefits of EMV
The primary benefit of EMV is that
it reduces fraud costs. Because the
microchip is virtually impossible to
duplicate, criminals find EMV cards
much less attractive to steal and
clone. For example, the introduction
of EMV in Canada helped reduce
fraud losses by 73% on Interac
debit cards tied to skimming.3
The process of using chip cards at
the point of sale is slightly different
than traditional magnetic stripe
cards. Many chip cards also have
a magnetic stripe for compatibility
with POS devices that are not able
to read chip cards.
EMV offers additional benefits
to merchants:
Chip Card
1. The cardholder inserts the card
into the terminal and leaves it for
a few seconds.
2. The terminal then reads the chip
embedded in the card.
•
Lower stolen card fraud (when
verified by a PIN)
•
Fewer chargebacks because
EMV verifies that the
cardholder was present
•
More satisfied customers
because cardholders know their
card will work; this is especially
important for travelers from
other countries where EMV
cards are prevalent
3. The terminal may prompt for a
PIN (for either credit or debit
transactions).
Magnetic Stripe Card
1. The merchant or cardholder
swipes the card and removes it
from the terminal.
2. The terminal reads the magnetic
stripe.
4. The terminal provides an
authorization response.
5. The terminal then instructs the
cardholder to remove the card.
6. If the transaction was not verified
with a PIN, the cardholder must
then sign the receipt.
It is worth noting that EMV does
little to prevent fraud in a card not
present environment because the
chip on the card is not read, and
therefore the transaction does not
have that extra layer of protection.
3. The terminal may prompt for a PIN
(for PIN debit transactions only).
4. The terminal provides an
authorization response.
5. The cardholder then signs the
receipt (except for PIN and no
signature required transactions).
EMV & Payment Security
EMV enables greater payment security and helps
reduce fraud costs because the microchip is virtually
impossible for criminals to duplicate.
What You Need to Know About EMV
POS Requirements for
EMV Cards
In order to accept EMV cards, the
merchant’s POS system must be
properly setup to handle chip cards.
This means merchants who use credit
card terminals must have a terminal
(and consumer-facing PIN pad, if
applicable) that has a chip card reader.
In addition, the software application
on the terminal must be certified by
the processor to support EMV. In other
words, just because a terminal has a
card slot on the front does not mean it
is ready to take EMV cards.
•
Liability Shift – Effective October
2015, Visa’s global counterfeit
liability shift will be instituted in the
U.S. for POS transactions. With
this liability shift, the party that is
the cause of a chip transaction
not occurring (i.e., either the
cardholder/issuer or the merchant/
acquirer) will be held financially
liable for any resulting card present
counterfeit fraud losses. The shift
helps to better protect all parties
by encouraging chip transactions
that use unique, dynamic
authentication data.
At this time, the card brands have not
introduced any special interchange
rates for EMV transactions.
Visa and MasterCard
Rules for EMV
The major card brands are pushing
for adoption of EMV in the United
States, and have created new policies
to encourage adoption. Below are
the key Visa policies, which generally
have been followed by the other card
brands.
•
PCI Requirements – Effective
October 2012, Visa expanded the
Technology Innovation Program
(TIP), eliminating the requirement
to annually validate compliance
with the Payment Card Industry
Data Security Standard (PCI DSS)
for any year in which at least 75%
of the eligible merchant’s Visa
transactions originate
from dual-interface EMV
chip-enabled terminals.
The card issuer determines which
CVM to use for various situations, such
as the capabilities of the terminal and
the size of the transaction. When the
cardholder inserts the card into the
credit card terminal, the terminal and
the chip on the card communicate to
agree on the type of CVM to use for
each transaction.
MasterCard favors online PIN because
of the stronger security it provides.
It’s much easier to fake a signature
than to know someone else’s PIN.
On the other hand, Visa recommends
signature as the preferred CVM to cut
costs and expedite the migration to
EMV. Ultimately, each card issuer will
decide its preferred CVM.
Chip and PIN or
Chip and Signature?
EMV supports different ways to verify
the cardholder, known as Cardholder
Verification Methods (CVM). “Chip
and signature” refers to the cardholder
signing the receipt to verify their identify,
just like a normal credit card transaction.
For “chip and PIN” transactions,
the cardholder enters a PIN that is
encrypted and verified in real time
by the card issuer, similar to PIN
debit transactions today. This is also
called “online PIN.” EMV supports
other CVMs as well, including “offline
PIN” (where the PIN is validated on
the card’s chip, but not with the card
issuer), and no CVM (which is for
low value transactions, similar to “no
signature required” programs).
When should
merchants
upgrade their
POS equipment?
Each merchant must choose
the best approach for its
business. However, if a
new POS device can help a
business increase revenue,
reduce costs, or save
time, then it may justify the
investment.
What You Need to Know About EMV
When Will EMV
Take Off in the U.S.?
Most experts agree that adoption
of EMV will be driven mainly by the
issuance of EMV cards in the U.S.
Merchants generally want to support
the preferred cards of their customers,
so the increasing popularity of chip
cards will motivate merchants to
support EMV.
While there are 1.6 billion EMV cards in
use worldwide, less than 1% of cards
in the U.S. are chip cards.1 So, when
will EMV cards become popular in the
U.S.? There is no definitive answer to
that question.
Some large issuers have begun
providing EMV cards to their
cardholders, primarily to big spenders
and overseas travellers. Chip cards
are much more expensive to produce,
so card issuers were slow to issue
them in mass quantities. Experts
predict that anywhere from 270 million
to 650 million chip cards will be issued
in the U.S. by the end of 2015, which
means anywhere from 23% to 54% of
cards will have EMV capability. Those
forecasts represent a wide range of
outcomes, but all of them suggest that
2015 will be the first year in which a
meaningful number of chip cards will
be in use.
The other side of the coin is merchant
acceptance. As mentioned earlier,
merchants must upgrade their POS
systems to accept chip cards. There
are approximately 12 million POS
terminals in the U.S., and the average
merchant replaces a terminal once
every five to six years.2
The certification process for EMV
is much more complicated than
standard credit card terminals due to
the complex security requirements.
As a result, it is taking time for credit
card processors to introduce terminal
applications that are certified to
support EMV cards.
Once POS vendors and merchant
processors offer EMV-capable
hardware and software, then
merchants must invest the time
and effort to upgrade their systems.
Upgrading is a more significant
project for merchants with robust POS
systems than it is for merchants who
use standard credit card terminals.
As you can see, it’s not easy to predict
exactly when EMV will become widely
used in the U.S.
Glossary
•
Chip Card – A payment card with
a microchip.
•
Cardholder Verification Method
(CVM) – A way to verify the owner
of a payment card, such as a
signature or PIN.
•
Chip & PIN – A term that refers
to an authentication method
that uses a PIN to verify that the
person using the chip card is
indeed the rightful owner.
•
Dual Interface – A POS device
that supports contact and
contactless chip cards.
•
EMV (Europay International,
MasterCard, and Visa) – A set
of standards for interactions
between chip cards and POS
devices.
•
Liability Shift – A policy of the
card brands where merchants
will be responsible for counterfeit
card losses for chip card
transactions if the POS device
can’t read the chip.
•
Smart Card – Another name for
a chip card.
What Should Merchants
Do Now?
Merchants with many foreign customers
– such as restaurants and limousine
services in cities with large numbers of
visitors from outside the U.S. – should
start planning to support EMV.
They can have their staff monitor the
frequency of EMV cards among their
customers, especially customers who
request to use chip card functionality or
do not even have a magnetic stripe on
their card.
What You Need to Know About EMV
Other merchants should continue to
monitor the adoption of EMV in the
U.S. Merchants who are upgrading
or changing POS equipment should
consider purchasing equipment that
has a smart card reader for chip
cards in addition to a magnetic stripe
reader. While terminals with chip card
readers are generally more expensive,
choosing an EMV-capable terminal
now can prevent the need to buy new
hardware again in the near future.
One approach is to treat EMV similar
to other POS decisions. If a new POS
device can help a business increase
revenue, reduce costs, or save time,
then it may justify the investment.
Each merchant must choose the best
approach for its business.
When the time comes to support
EMV, merchants in high volume
environments should consider a
customer-facing PIN pad with a chip
card reader so customers can easily
“dip” their EMV cards and enter their
PIN (if applicable). In environments
where transaction speed is less of a
concern, a single credit card terminal
may be sufficient, so long as it can
pivot or move for the customer to use.
Clearent is prepared to support its
merchants as EMV cards become
common place and start being
issued by more financial institutions.
Clearent offers terminals with smart
card readers from leading providers
such as Ingenico and VeriFone.
Newer Ingenico models have updated
software that fully supports EMV, and
we expect EMV-ready software for
VeriFone terminals in early 2015.
Because it’s difficult to predict when
chip cards will become mainstream in
the U.S., it’s not easy for merchants
to determine the best time to invest in
EMV-enabled equipment.
Clearent customers can purchase
terminals with smart card readers
today, and, if necessary, upgrade
the software application in the future
for full support of EMV transactions.
Merchants who adopt this approach
can accept EMV card transactions in
the future without having to purchase
a new terminal.
How Does Clearent
Support EMV?
Additional Resources
•
Visa U.S. Merchant EMV Chip
Acceptance Readiness Guide
•
A Guide to EMV by EMVCo
•
MasterCard’s website
on EMV
•
EMV Connection by the Smart
Card Alliance
1
© 2014 Clearent, LLC, a Member Service Provider for Central Bank of St. Louis.
Updated 12/14
IF YOU’D LIKE TO LEARN MORE about EMV and the
impact it will have on your business, contact us at
[email protected] or 888.692.5285
clearent.com
twitter.com/GoClearent
linkedin.com/company/clearent
facebook.com/GoClearent
2
3
Source: EMVCo, creditcards.com
Source: Aite Group
Source: Digital Transactions, April 2013