EMV & Smartcards

1. EEMMVV && SSmmaarrttccaarrddss:: WWhheenn wwiillll
mmeerrcchhaannttss bbee rreeqquuiirreedd ttoo mmaakkee tthhee
cchhaannggee??
WWhhaatt iiss EEMMVV??
EMV is a technology developed in 1994 that uses smart cards to secure credit and
debit card transactions. EMV was originally developed by Europay, MasterCard and
Visa. EMV Circuit Card Specifications are maintained and enhanced by EMVco,
owned by American Express, JCB, MasterCard and Visa.
The technology transmits to a merchant's credit card machine via a small microchip in
the customer's credit card instead of a magnetic strip that is currently found on the
back of a typical credit card.
WWhhaatt iiss aa ssmmaarrttccaarrdd??
A smart card is a credit card that has a microchip with memory and micro processing
functionality. 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 be
accepted by merchants with point of sales systems capable of reading a smart card or
regular credit card.
The microchip in the smart card utilizes a one-time-use password that protects each
transaction. The ability of the microchip in the smart card to generate this one-time-
use password is a unique characteristic in EMV's security, and it's where smart cards
derive their name.
Visa and MasterCard have implemented measures to help bring EMV to the United
States. For financial institutions, requiring them to issue cardholders new credit cards
and update networks to process EMV data. For merchants, they will need to purchase
new EMV-compliant terminals.
The costs associated with the transition to EMV are expected to be ultimately passed
on to the merchant and consumer. The benefits are increased security and reduced
fraud. EMV is currently the payment standard in every major market except for the

2. United States, making the switch to EMV in the U.S. long anticipated. Many speculate
that the U.S. has been reluctant to convert to the lower risk credit cards as this would
facilitate an argument for lower interchange rates which card issuers (those that
benefit from interchange rates) have argued need to be higher to compensate for
potential losses due to fraud.
EMV decreases credit and debit card fraud on card-present transactions from its
advanced technology. Unlike the traditional magnetic strips that transmit static
information on regular credit cards, a microchip transmits a unique cryptogram to
every transaction. Since each transaction transmits a different cryptogram, criminals
are unable to replicate the code to perpetrate fraud.
The cryptogram of a smart card prevents "card skimming," which occurs when the
information from a magnetic strip is lifted without the cardholder’s knowledge. Once
obtained, this information can be used to "card transplant". This is when devices copy
a Cardholder's data to a blank card. The card is then used to commit fraud.
A globally adopted EMV standard allows cardholders to travel freely and make
purchases anywhere using the technology.
HHooww aarree tthheeyy pprroocceesssseedd??
EMV is a card-present technology, meaning the card must be physically within a few
inches in what's called a near field communication (NFC). EMV cards are not swiped
like 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 reader
on a merchant's POS system. Sometimes the cardholder will need to insert the EMV
card into a slot in the merchant's credit card terminal. If a card can be processed both
ways, they are called dual interface cards.
WWhheenn wwiillll tthhiiss iimmppaacctt tthhee mmeerrcchhaannttss iinn tthhee UUSS??
Technology Innovation Program (TIP) Visa's TIP went into effect October 1, 2012
permitting U.S. merchants eliminate PCI validations once 75% or greater of their
transactions originate from a device capable of transacting both NFC or physical EMV
transactions. This does not mean the merchant wouldn't be responsible for paying
their PCI compliance fees to their credit card processor.
On October 15, 2015, credit card processors will be responsible for losses due to fraud
that occur as a result to a cardholder being forced to use a magnetic strip credit card
instead of a smart card as a result of a business not having a smartcard capable
device. Losses will be passed from the processor to the business. Gas stations are

3. given until 2017 to upgrade their equipment due to the higher costs associated with
upgrading the equipment.
TThhee ttiimmee iiss NNOOWW ttoo pprreeppaarree!!
The time to begin preparing for the upcoming EMV transition is now. EMV-capable
credit card processing machines and POS terminals are available. If you anticipate
purchasing any new equipment make sure you talk to your processor about
purchasing a device that is compatible with EMV. We don't recommend rushing out
to purchase a new machine unless you need a new one, although we do recommend
you add this cost into your 2014 budget.
One other thought... We don't think it's ever prudent to lease equipment. The amount
a processor will charge a merchant for a terminal over the term of a lease will pay for
the equipment several times over. If at all possible, it is a much more cost effective
option to purchase your equipment.