By now, you’ve certainly heard about the Europay/MasterCard/Visa (EMV) standard and a liability shift that’s slated for October 2015. However, there’s a lot of information out there—much of it is just plain confusing. Let’s take a look at some of the questions you may have about EMV, and separate the truth from the misconceptions.
Q: What is EMV?
A: EMV is a payment method in which an integrated circuit chip (ICC) is embedded into a plastic card. The ICC replaces the magnetic stripe on the card, holding the account number and other sensitive data. It also contains the logic needed for transaction processing and risk management. Point of sale equipment that accommodates EMV payments has been gradually deployed in other parts of the word over the past few years.
Q: Why is EMV coming to the U.S. now, and what is the liability shift?
A: The incidence of credit card fraud in the U.S. is increasing and is far higher than in other parts of the world where EMV has already taken hold. EMV supports enhanced identity verification methods—either chip-and-PIN or chip-and-signature. Additionally, the presence of the ICC within a credit or debit card makes it impossible to duplicate. This year, U.S. card issuers began to step up the distribution of cards with EMV chips in them.
As for the liability shift, as of this coming October, the liability for fraudulent transactions will be transferred from the card issuer to the merchant if the merchant isn’t utilizing EMV technology. The liability shift doesn’t apply to card-not-present (CNP) transactions, and EMV doesn’t prevent fraudulent use of credit cards for these transactions.
Q: Must I implement EMV-compliant equipment, and will I be forced to pay higher interchange rates if I don’t do so?
A: Contrary to what some people believe, there’s no mandate, and card networks will continue to charge the same interchange rates for EMV and non-EMV transactions. Merchants can deploy EMV-compliant equipment at their own pace, if they follow that route at all.
Q: Will EMV have any effect on credit card pre-authorization procedure?
A: Yes, the transaction flow of pre-authorization followed by a completion, for example restaurant addition of tip, will not work in its current form with EMV. The reason for this is that the amount of the authorization must be known at the time the EMV transaction is conducted, because the authorization amount is one of the data elements used to generate the transaction cryptogram. We are exploring ways to create a similar transaction experience, by completing a sale transaction followed by an adjustment, to add things like tips.
Q: I already have end-to-end (E2E) encryption, so is it okay to skip EMV?
A: Again, EMV is not a requirement. However, it can play a key role in card security. Combining EMV with E2E encryption lets merchants avoid the liability shift and reduce their scope of compliance with the Payment Card Industry Data Security Standard (PCI DSS).
Q: Doesn’t the liability shift mean cards with magnetic stripes will no longer be issued and my existing POS equipment won’t work once it takes effect?
A: While it’s unclear how long cards with magnetic stripes will continue to be issued, they aren’t going anywhere for the foreseeable future. Canadian banks are still issuing magnetic stripe cards—and Canada switched to EMV five years ago. What’s more, card brands and issuers will almost certainly give merchants sufficient notice if they decide to stop issuing cards with magnetic stripe capabilities. So yes, your existing POS equipment will still work following the liability shift.
Q: Shouldn’t I just get an EMV-ready terminal that is separate from my point of sale hardware?
A: No. This will invalidate the functionality of your point of sale system. And remember—there are two types of EMV equipment: “EMV-ready” and “EMV-certified.” “EMV-ready” equipment simply has a slot into which consumers insert their chip cards to make payments. “EMV-certified” indicates that the hardware, payment application and device software have been certified to work best with specific payment processors and point of sale solutions. Contact our support to determine which devices will work best with your system and satisfy your business needs.
Q: What types of business have the highest risk?
A: History has shown that thieves target large ticket items like electronics. These items are easily resold and usually harder to trace. Typically they are not going to sit in a restaurant risking that a card will be declined drawing attention. Also cards usually get flagged after a couple of transactions so they look to maximize the amount stolen on the first transaction.
The idea of grappling with EMV and the liability shift may be daunting, but it doesn’t have to be. Consider all sides of the issue before making any EMV-related decisions, and call on vendors and other experts to point you in the right direction.