EMV, which stands for EuroPay, Mastercard and Visa, will begin to be implemented this upcoming October 1, 2015. With it, the United States (one of the few remaining hold-outs still using magnetic stripe technology for its credit cards), will join the rest of the world in how it handles credit card transactions. Some estimates are that while the U.S. accounts for just 24% of global credit card use, it accounts for almost half of the estimated $11.3 billion in credit card fraud annually. EMV, which uses computer chips imbedded in the credit card to authenticate transactions, makes it much more difficult to commit credit card fraud and has therefore become the global standard.
While magnetic stripes on traditional credit cards store a fixed set of data about the cardholder, which can then be stolen by criminals and replicated, the computer chip imbedded in an EMV card creates a unique transaction code that can only be used once. Even if stolen, the data is worthless. As a result, the chances for data breaches, counterfeit cards, and credit card fraud are greatly reduced.
So, how will EMV affect us? For consumers, it’s pretty easy; we’ll mainly need to learn a new way to use our credit cards. Unlike the current system that has us swipe our magnetic-stripe card through a card reader, the chip-imbedded card is placed in a card reader, and remains there until the transaction is verified, processed and completed. It is the communication between the point-of-sale terminal and the card issuer that creates the unique, single use, transaction code.
It’s a bit more complicated for merchants who will have to purchase new (and expensive) card readers, comply with new processing systems, and face new rules concerning liability for fraudulent transactions. Currently, the credit card issuer or payment processor absorbs the financial loss for fraudulent transactions. Under the new system, the financial loss for fraudulent transactions will shift to whichever party in the transaction chain was the least EMV compliant. More often than not, if the merchant has not switched to the new card-reader technology, the merchant will bear the loss.
The switch to EMV technology was created by major U.S. credit card issuers, and has a number of phase-in dates, through 2017. Of the estimated 1.2 billion credit and debit cards that need to be upgraded to EMV technology, less than half are projected to be updated by the end of 2015. Most cards that are being issued currently are equipped with both chip and magnetic stripe technology in order to insure acceptance pending full implementation of the EMV technology.
While EMV technology is not a fool-proof solution to the growing problem of credit card fraud, it will certainly go a long way toward keeping us a couple of steps ahead of those who wish to do us harm.