The fundamentals of EMV in the US

Improving security, reducing fraud and enabling cardholders to use their cards abroad with much more convenience – EMV cards are in the US to stay.

What is EMV?

Simply put, EMV is a security standard for payment cards and mobile card payments. Named for its founders, Europay, MasterCard, and Visa, EMV defines a set of security standards for credit and debit card transactions that can be used for NFC mobile payments, too. Commonly referred to as “EMV cards,” or “EMV credit cards,” these cards use a smart chip instead of a magnetic stripe to hold the data that is required to process a transaction.

A smart chip has the power of a small computer, allowing it to run applications that can perform advanced authentication. The chip’s processing power, along with its capacity to store more information than a magnetic stripe, means that EMV cards can hold encrypted data, perform cryptography, and generate a unique code that is assigned to each transaction. This code is key to fighting fraud because it must be generated by the chip and cannot be used for more than one transaction.

It’s virtually impossible to make a counterfeit EMV card because the chip is extremely difficult to tamper with or clone, which has resulted in reduced counterfeit fraud wherever EMV has been implemented.

EMV comes in many different forms, to let you match your costumers’ needs:

  • Contact EMV cards
  • Contactless EMV cards
  • Mobile EMV
  • Wearable EMV

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Why EMV?

The main reason why issuers, payment networks and merchants across the United States are migrating to EMV technology is the significant fraud reduction. Additional benefits include more convenience abroad for cardholders, and paving the way for other forms of digital payment.

Reduced fraud

When many countries in the world shifted to EMV, the US became an easy target for fraudsters. Between 2004 and 2010, fraud using US-issued bank credit cards rose 70%. And in 2012 credit card losses in the United States totaled $5.33 billion, an increase of 14.5% from 2011.

To reduce fraud, the US began its massive migration to EMV in 2014-2015, and as of today, more than 600 million EMV cards have been issued to US consumers.

And we’re seeing results already. According to Visa, we are already seeing a 43 percent reduction of counterfeit fraud at chip-enabled merchants.

​Convenience abroad

With market penetration of EMV technology growing around the world, in particular the nearly 100% coverage in portions of Europe and Canada, magnetic stripe technology has become more and more archaic.

Millions of US cardholders have been inconvenienced abroad over the last few years when carrying non-chip cards. Cashiers refused to take those cards, and gas pumps and ticket kiosks didn’t accept them at all.

Thanks to the new EMV cards, which are aligned with global standards, that is no longer the case. US-issued chip cards work in any EMV country in the world.

Pave the way for digital payment

Migrating to EMV also prepares the US market for other forms of digital payment – from mobile wallets, to wearables to further Internet of Things applications. All these innovative forms of payment rely on EMV, and it is only with the EMV infrastructure in place that it becomes possible to conduct secure contactless transactions.

What did the 2015 Fraud Liability Shift mean?

​​​All of the major card brands (Visa, MasterCard, American Express, and Discover) have shifted the liability for counterfeit card fraud losses, which used to be held largely by card issuers, to merchants and their acquirers unless both parties implement EMV. The new liability rules took effect on October 1, 2015.

For card issuers, this means that ​if a counterfeit charge occurs one of your EMV cards, liability may shift to the merchant or their acquirer, if the card wasn’t processed using the chip. ​Merchants who accept in-store payments may be liable for fraudulent transactions if an EMV card is presented but the merchant chooses to process the payment using the magnetic stripe instead. Merchants can prevent this by installing EMV-enabled terminals. Fortunately nearly all POS terminals sold today in the US are EMV-ready.

The intent of the liability shift was to accelerate the adoption of EMV in the US on both the issuing and merchant sides. To further motivate merchants to install EMV-capable payment systems, many card brands are offering additional incentives like PCI-DDS audit relief or reduced chargeback fees.

The ATM liability shift is set for October 2017, and automated fuel dispensers have until October 2020 to activate EMV.

How Do EMV Cards Work?

EMV cards do everything that magnetic stripe cards do, but more securely. The chip cards are used a little differently at the payment terminal than the magnetic stripe ones. Instead of swiping, a contact EMV card needs to be inserted into the terminal and remain there while the transaction is completed. Some cards require a PIN, and some require a signature.

Contactless EMV cards are even easier to use and deliver the fastest transactions. You simply tap the card on the payment terminal and you’re done. The transaction is complete.

​Mobile EMV uses the same tap-and-go go convenience as contactless cards, except that the secure data is stored on your smartphone, instead of on the card’s chip. These payments are just as secure as all EMV transactions, with the added convenience of a mobile wallet.

Sources: Federal Reserve, The Economist and Payment Forum

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