2018 EMV chip card update
How a small chip is providing big benefits
“Chip cards” were once the newest thing in payments. The ongoing transition from ‘swiping’ to dipping’ ushered in a wave of change to the retail point of sale. Like any shift of habits, the adjustment proved challenging at times. Upgrading to chip card technology forever altered point of sale checkout routines. Businesses had concerns of their own, like the cost of equipment upgrades.
So have chip cards been worth the trouble? The short answer is unambiguously “yes.” EMV chip cards have significantly reduced the volume of in-store counterfeit fraud. In a two-year period ending December 2017, Visa reports a 76 percent reduction in card-present counterfeit fraud for merchants adopting EMV.
If you accept credit and debit card payments in-store, you are concerned about the safety of your money and the payment experience of your customers. This update answers frequently asked questions about the state of EMV chip cards in 2018.
What is EMV? Who is responsible?
EMV is a set of global standards that promote secure payment transactions. EMV is best known for chip cards and the secure point of sale terminals that accept them. Yet chip cards are just the tip of the iceberg: EMV is an evolving set of standards that allow businesses to safely accept payment from their customers.
Beginning in 1993, card brand networks Europay, Mastercard, and Visa (hence EMV) joined together to create the original EMV specifications. EMV standards are currently maintained by EMVCo, a private corporation representing six major card brand networks: American Express, Discover, JCB, Mastercard, UnionPay, and Visa.
Before the creation of EMV, each card brand network had its own standards. Overlapping and inconsistent standards made accepting payments complex. EMV’s common standards make accepting debit and credit cards easier for small businesses.
Why is EMV technology so important?
The security features of EMV technology bring in-store credit card processing into the 21st century. Magnetic stripe was the dominant credit card processing technology for decades. Magnetic stripe uses the same multi-track magnetic data storage technology behind analog cassettes. The 1970s-era technology was no match for fraudsters of the modern computer age.
Simply put, magnetic stripe technology was static. Everything required for a customer to make a credit card purchase is stored on a magnetic stripe. Unfortunately, criminals long ago figured out how to capture that static data and replicate it on counterfeited cards. This made the process of verifying that each use of a card was duly authorized by its owner difficult if not impossible.
EMV transactions are dynamic. When the chip on EMV cards connects with an EMV-enabled terminal, a unique, single-use, one-time code is created and encrypted. The dynamic generation of a code and its cryptographic encryption plugged one of the biggest security holes in system of electronic payments.
Is EMV a law? What’s the “liability shift”?
EMV isn’t a law—it’s a voluntary set of standards that help make payments safer. In order to provide positive incentives for everyone involved in the payment ecosystem, the credit card networks changed the ways certain types of fraud are resolved with EMV.
Prior to October 1, 2015, when credit card data was stolen, counterfeited, and used for purchases in the U.S., the financial institution that issues the card would be responsible for fraudulent purchases. The logic was that the bank was the party most responsible for not safeguarding the data.
Starting on October 1, 2015, that liability for fraud shifted to the party least in compliance. If the customer’s bank supplied an EMV card, but the retailer hadn’t upgraded to an EMV terminal, the retailer would be held responsible for losses. The logic being that the bank had invested the effort to provide the customer with an EMV chip card. If the business declined to make the same effort and use an EMV terminal, the liability for the fraud would fall on the merchant.
What’s the status of the chip card upgrade?
EMV chip cards have been in widespread use across Europe for many years. Chip cards have proven remarkably successful at combating card-present fraud. According to a study by the UK Card Association, the implementation of EMV in the U.K. reduced in-store credit card by 75 percent from 2004 to 2012. EMVCo reports EMV adoption rates approaching 85 percent in Europe in 2017, with the percentage of in-store transactions using EMV exceeding 98 percent.
U.S. adoption of chip card technology has lagged behind the rest of the world. EMVCo reports that as of 2017, 785 million chip cards had been issued in the U.S. for an adoption rate of 58.5 percent, with 41.2 percent of transactions being EMV. However, the U.S. is catching up fast: the percentage of EMV transactions was just 18 percent as recently as 2016.
Have chip cards really made a difference in fighting fraud?
A March 2018 Visa report showed at U.S. chip-enabled merchants, counterfeit fraud dropped 76% from December 2015 to December 2017. That’s real progress.
Consumer attitudes about chip cards are changing fast as well. An April 2018 survey from Worldpay and Socratic Technologies reported that 82 percent of credit card users report positive experiences with chip cards, while 74 percent of users saying they hadn’t experienced any difficulties using chip cards in the past year.
Change is always difficult. In the case of secure chip cards,confusion at the checkout counter, costs for retailers to upgrade terminals, and costs to issue new chip cards all represented headwinds.Yet the cost-benefit of EMV is clearly positive.
What does the future of EMV hold?
EMV is not a cure-all for fraud. Fraudsters are organized, determined, skilled, and incentivized to pursue their criminal enterprises. Fraudsters have proven consistently innovative, creative, and persistent. The success of EMV has sent fraudsters scurrying, concentrating their efforts increasingly on call centers and online (or “card-not-present”) fraud. Despite this, the story of EMV shows that fraud can be defeated when a community bands together.
In 2018, EMVCo works with a community of businesses large and small, financial institutions, payment networks, and financial technology companies to make payments safer. EMVCo continues its work on the latest secure payment technologies including specifications for QR codes, 3-D Secure, contactless chip, tokenization, and EMV® 2nd Generation. These efforts are critical and yet reflect only a fraction of the work being done across industries to prevent fraud and provide a level playing field for all.
Businesses of every size that accept electronic payments need to make every effort to protect their business and their customers from the impacts of fraud. From preventing counterfeit fraud and unwarranted chargebacks to protecting from potentially devastating data breaches, keeping your business safe when accepting electronic payment requires planning.
For small businesses that need to keep their focus squarely on their customers, that planning is made infinitely easier with the help of an experienced payments partner. Worldpay is a payment technology leader that can help guide your business journey on the safest path. Connect with one of our payments experts today to learn how EMV can help keep your business safe from in-store counterfeit fraud.