What Does EMV Mean?

EMV, taken from the initials of the developers Europay, Mastercardand Visa, is a technical standard for processing credit card payments being adopted around the world based on embedded-chip technology verses the old credit card magnetic stripe. Compliance with this standard ensures merchant credit card terminals are universally compatible with credit cards embedded with these microchips to provide greater security against fraud. That’s a lot of information to throw at you in a few sentences, isn’t it? So, let’s break it down.

Magnetic Strip Technology Vs. Chip-Embedded Technology

Let’s start with the difference between the two types of credit cards.

If you’re a merchant doing business in the United States, you’re most familiar with credit cards that have a traditional magnetic stripe on the back. This magnetic stripe stores basic customer data, and with a simple swipe of the card at a payment terminal this information is transmitted to the issuing bank for authorization and you get an approval code back, all in just seconds.

In Europe and other countries around the world, on-line access is not always available, or affordable to merchants, so most credit card payment transactions are done off-line. Simply stated, chip-embedded technology was developed so store owners could verify card holder information on their own point-of-purchase terminal.

The cardholder’s data is stored on a micro-computer processor embedded in the credit card behind a gold contact plate, and protected by a thin resin layer. This chip contains the cardholder’s information, along with the cardholder verification method. Some cards require a pin number for authorization (referred to as “Chip and Pin”), while other cards require a signature (referred to as “Chip and Signature”). When an EMV credit card is placed into an EMV terminal, the contact plate lets the chip connect to and exchange data with the on-site terminal.

Granted, this is a simplified explanation of the two technologies. But it will help you understand the value of EMV technology.

What Are the Benefits of Chip (EMV) Technology?

Chip technology has three major benefits over the older, magnetic strip technology.

1. When processing a credit card payment, especially offline, EMV technology offers better security against fraud from counterfeit, lost, and stolen cards.
2. The information stored on a chip is not as vulnerable to theft by criminals looking to steal cardholder information or reproduce counterfeit credit cards.
3. By standardizing technology for processing credit card purchases, it will simplify purchasing in a global economy.

What does that mean for merchants who accept credit cards?

In Europe, where the combination of chip-embedded credit cards and compatible credit card terminals has been used for a number of years, studies indicate that credit card fraud has dropped. Good news for European merchants but not such good news for US merchants. Credit card theft is on the rise in the US because older methods of credit card authorization are easier to hack. As a result, US financial institutions are pushing merchants to transition to EMV technology.

Deadline For Compliance

Merchants in the US must be prepared to accept chip-embedded credit cards by October, 2015. Although each credit card brand has come up with their own interim deadlines and detailed guidelines to help merchants prepare to be in compliance, there are similarities among all of them. For example, all the major credit card brands are offering perks to merchants who adopt EMV technology before the deadline. Master Card offered to reduce a merchant’s liability for fraud costs by 50% if they were processing at least 75% of their credit card transactions on a terminal that was EMV compliant by October, 2012. Visa had a similar offer. And both brands have developed a PCI compliance validation exemption which waives the annual PCI-DSS audit for companies that process at least 75% of their credit card payments through an EMV terminal.

But the end deadline is the same for all merchants no matter what credit cards you accept, and so is the end result: liability for the cost of credit card fraud shifts to the merchant who has not switched to EMV-enabled credit card processing terminals by October 1, 2015.

The Cost of Switching to EMV Technology

There’s no doubt that adopting the new credit card processing technology puts a serious financial burden on many US companies, both big and small. To meet the requirements, merchants must replace all their credit card payment terminals with new terminals that are EMV technology compliant. The cost of a chip reader with a pin pad can be as much as $100. Even with a discount for multiple units, this could cost large chains with multiple locations, each with multiple check-out registers, millions of dollars. Some credit card processing companies are offering free EMV terminal to qualified merchants, depending on how many transactions they process per month. But in the end, all companies, big or small, will have to upgrade their equipment to comply with the EMV standard.

The impetus behind chip-embedded technology is to help you protect your customer’s credit card data and to better protect you from the fraudulent use of stolen data. Over the next year as this standard is phased into place, you will come to appreciate the benefits of this enhanced data security protection.