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EMV 101 Series: The 5 W's

The EMV 101 series provides go-to-resources for those who are interested in learning more about EMV payment technology and EMV migration in the US. This is the first entry to this series that gives readers the basics of EMV.  As we progress throughout the series, we will go more in-depth on the EMV technologies and applications that are important for a successful program roll out.
As we anticipate the EMV liability shift in October 2015, it is critically important to ensure there is adequate education focused on what financial institutions need to know, as well as how to prepare for this payment shift. Below, is an outline of some of the basics. The 5 W's that you need to know: Who? What? Where? When? &  Why? Where is the US payment card industry now? Where is it going? Today, payment and identification cards of all types are encoded with the cardholder’s information on the back of the card using a strip of magnetic tape, also known as the magnetic stripe. When a consumer swipes a standard magnetic stripe card at a retailer’s point of sale (POS) terminal, the data on the magnetic stripe is captured for transmission to an online authorization system. Chip cards are different from traditional magnetic stripe cards in the way they communicate with POS terminals. Rather than the classic swipe-to-scan method, chip cards have an embedded integrated circuit chip which connects to the POS terminal’s chip card reader.  This chip is a microprocessor, which is essentially a very small computer, with the capability to encrypt transaction data dynamically for each purchase. Because the card has a microprocessor embedded, it has the ability to make some payment related decisions without the need to connect to the network. This is why this type of card is often referred to as a “smart card”. What is EMV? EMV is an acronym for the founding companies who came together to build a common specification: Europay (now part of MasterCard), MasterCard and Visa.  These companies  formed EMVCo in order to administer an international standards to champion global interoperability for chip based payment cards.  This includes, but is not limited to, card and terminal evaluation, security evaluation, and management of interoperability issues.  Today there are EMV specifications based on contact chip, contactless chip, common payment application (CPA), card personalization, and tokenization. These specifications and requirements were developed with a mission to increase payment security and efficiency, and to ensure global interoperability amid payment ecosystems. A globally accepted EMV card with an associated PIN empowers cardholders to take out cash from an ATM in Hong Kong, buy lunch at a deli in New York, or buy a train ticket from a Deutsche Bahn kiosk in Munich—all with the same card. EMV regulations regarding chip size, card size, electrical use, and security features all help make this possible. Chip cards are already widely used in Europe, Asia and other regions. The transition of the US payment card market from magnetic stripe cards to chip cards is referred to as the US EMV migration. EMVCo is the association that manages, maintains and enhances EMV chip card specifications. EMVCo has expanded its sponsoring organizations and is comprised of six backing members—American Express, Discover, JCB, MasterCard, UnionPay, and Visa—and supported by dozens of banks, merchants, processors, vendors and other industry stakeholders who participate as EMVCo Associates. Who will be affected by EMV migration?
  • Cardholders will have to adapt to new ways of interacting with ATMs and POS terminals. Consumers will either have to insert their card for the duration of the transaction or they will have to tap or wave their card over the designated area. Also, depending on how the chip card is configured and the capabilities of the POS terminal, cardholders may have to verify they are the actual cardholder by entering a PIN instead of verifying by signature.
  • Card Issuers will have to work with acquirers to update their payment processing and authentication infrastructures.
  • Merchants will have to upgrade and certify their POS terminals so that they can communicate with EMV cards and process the EMV data, which encrypts the cardholder information
When is migration happening? Now. Slowly but surely, major card providers in the US are beginning to offer chip based payment cards. The US is the last major economy in the world to implement chip based payment technology, and in an effort to encourage EMV deployment, the US card brands have instituted a fraud liability shift beginning October of 2015. This means that after October 2015, all parties that make an investment in EMV technology will be protected from being financially liable for any potential fraud losses. Why migrate now? EMV provides better protection for cardholders. Card fraud is a huge problem in the US, largely due to the prevalence of magnetic stripe swipe cards, which are easy to counterfeit. In 2012, the US accounted for 47% of global credit card fraud while only being responsible for 23% of total global credit card use. EMV chip card ubiquity in the US will dramatically decrease the options fraudsters will have to use stolen account data, and it will enable cardholders to embrace new ways of making payments by protecting and informing them. EMV Migration will not correct every weakness within the US payment system, but it is the first clear step in a long process of ushering the payment business into the digital age.        

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