EMV and Smartcards


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EMV & Smartcards

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EMV and Smartcards

  1. 1. EEMMVV && SSmmaarrttccaarrddss:: WWhheenn wwiillllmmeerrcchhaannttss bbee rreeqquuiirreedd ttoo mmaakkee tthheecchhaannggee??WWhhaatt iiss EEMMVV??EMV is a technology developed in 1994 that uses smart cards to secure credit anddebit card transactions. EMV was originally developed by Europay, MasterCard andVisa. EMV Circuit Card Specifications are maintained and enhanced by EMVco,owned by American Express, JCB, MasterCard and Visa.The technology transmits to a merchants credit card machine via a small microchip inthe customers credit card instead of a magnetic strip that is currently found on theback of a typical credit card.WWhhaatt iiss aa ssmmaarrttccaarrdd??A smart card is a credit card that has a microchip with memory and micro processingfunctionality. Smart cards are the same size and shape of traditional credit cards.They typically feature a magnetic strip in addition to a microchip allowing it to beaccepted by merchants with point of sales systems capable of reading a smart card orregular credit card.The microchip in the smart card utilizes a one-time-use password that protects eachtransaction. The ability of the microchip in the smart card to generate this one-time-use password is a unique characteristic in EMVs security, and its where smart cardsderive their name.Visa and MasterCard have implemented measures to help bring EMV to the UnitedStates. For financial institutions, requiring them to issue cardholders new credit cardsand update networks to process EMV data. For merchants, they will need to purchasenew EMV-compliant terminals.The costs associated with the transition to EMV are expected to be ultimately passedon to the merchant and consumer. The benefits are increased security and reducedfraud. EMV is currently the payment standard in every major market except for the
  2. 2. United States, making the switch to EMV in the U.S. long anticipated. Many speculatethat the U.S. has been reluctant to convert to the lower risk credit cards as this wouldfacilitate an argument for lower interchange rates which card issuers (those thatbenefit from interchange rates) have argued need to be higher to compensate forpotential losses due to fraud.EMV decreases credit and debit card fraud on card-present transactions from itsadvanced technology. Unlike the traditional magnetic strips that transmit staticinformation on regular credit cards, a microchip transmits a unique cryptogram toevery transaction. Since each transaction transmits a different cryptogram, criminalsare unable to replicate the code to perpetrate fraud.The cryptogram of a smart card prevents "card skimming," which occurs when theinformation from a magnetic strip is lifted without the cardholder’s knowledge. Onceobtained, this information can be used to "card transplant". This is when devices copya Cardholders data to a blank card. The card is then used to commit fraud.A globally adopted EMV standard allows cardholders to travel freely and makepurchases anywhere using the technology.HHooww aarree tthheeyy pprroocceesssseedd??EMV is a card-present technology, meaning the card must be physically within a fewinches in whats called a near field communication (NFC). EMV cards are not swipedlike magnetic cards. Instead, they are processed using near field communication (NFC)or physical contact. A cardholder will waive their smart card in front of a special readeron a merchants POS system. Sometimes the cardholder will need to insert the EMVcard into a slot in the merchants credit card terminal. If a card can be processed bothways, they are called dual interface cards.WWhheenn wwiillll tthhiiss iimmppaacctt tthhee mmeerrcchhaannttss iinn tthhee UUSS??Technology Innovation Program (TIP) Visas TIP went into effect October 1, 2012permitting U.S. merchants eliminate PCI validations once 75% or greater of theirtransactions originate from a device capable of transacting both NFC or physical EMVtransactions. This does not mean the merchant wouldnt be responsible for payingtheir PCI compliance fees to their credit card processor.On October 15, 2015, credit card processors will be responsible for losses due to fraudthat occur as a result to a cardholder being forced to use a magnetic strip credit cardinstead of a smart card as a result of a business not having a smartcard capabledevice. Losses will be passed from the processor to the business. Gas stations are
  3. 3. given until 2017 to upgrade their equipment due to the higher costs associated withupgrading the equipment.TThhee ttiimmee iiss NNOOWW ttoo pprreeppaarree!!The time to begin preparing for the upcoming EMV transition is now. EMV-capablecredit card processing machines and POS terminals are available. If you anticipatepurchasing any new equipment make sure you talk to your processor aboutpurchasing a device that is compatible with EMV. We dont recommend rushing outto purchase a new machine unless you need a new one, although we do recommendyou add this cost into your 2014 budget.One other thought... We dont think its ever prudent to lease equipment. The amounta processor will charge a merchant for a terminal over the term of a lease will pay forthe equipment several times over. If at all possible, it is a much more cost effectiveoption to purchase your equipment.