What Is EMV Chip Cards? How Does It Works?

Merchants have been urged to accept EMV chip cards since the fall of 2015 in an effort to prevent credit card data breaches at chain stores, which have exposed thousands...

Merchants have been urged to accept EMV chip cards since the fall of 2015 in an effort to prevent credit card data breaches at chain stores, which have exposed thousands of customers to hackers looking to make a quick profit.

According to CreditCards.com, the nationwide chip card initiative has resulted in 855 million chip cards being issued to American consumers, representing 85 percent of credit cards and 60 percent of debit cards by July 2017. While the number of businesses accepting chip-based credit and debit cards continues to rise, some businesses, particularly smaller ones, are still reluctant to embrace this innovation.

Small business owners can gain a better understanding of the current EMV standards and what they mean for the future by reading through this article.

What is EMV?

The chip storage of sensitive cardholder data on an EMV payment card, rather than a magnetic stripe, is what makes in-person payments more secure. The EMV standard, which was developed by Europay, MasterCard, and Visa, is a global credit card standard.

To reduce credit card fraud, EMV standards were implemented by the credit card payments industry. The government also got involved in a nationwide campaign to safeguard consumers. President Obama signed an executive order in October 2014 to bolster consumer protection. To comply with this order, payment card businesses must provide EMV microchip-enabled cards by October 2015. A White House fact sheet details the requirement.

According to Mike Blang, senior vice president of sales and marketing at Wind River Financial, a merchant account provider, chip-enabled cards have only recently become popular in the U.S., as the technology has been around for about two decades.

How does it work?

EMV technology is very straightforward for the consumer. Instead of swiping the magnetic stripe of a credit card, you dip one end of the card into an EMV reader so it can scan the chip. The EMV microchip must be able to communicate with the POS system where the card is used in order for EMV technology to function.

The microchip generates a unique code for each transaction that cannot be used again. The traditional magnetic stripe card, on the other hand, has data that can be easily copied by a cheap card-reading device and used to produce counterfeit cards.

Dax Dasilva, founder, and CEO of POS system provider Lightspeed says EMV cards provide an additional layer of security by requiring a PIN instead of a signature to authenticate purchases.

The liability shift is to be understood

MasterCard, Visa, American Express, and Discover, among the biggest card issuers, stated that merchants and issuers who did not adopt chip technology by October 2015 would be held responsible for any counterfeiting frauds.

Blang noted that the move to EMV chip technology was not a mandate.

According to a recent Manta survey of more than 2,000 small business owners, 56% of respondents said they did not accept EMV chip cards. Because of this, many small businesses avoided making the transition.

According to the Tidal Commerce website technology coordinator and marketing assistant Mark Guagenti, many business owners are not aware of the danger of not using EMV payments. Guagenti’s story is not uncommon, as 65 percent of Manta survey respondents who were unfamiliar with EMV fraud liability shift for credit cards or did not know what EMV technology is are examples.

Challenges of switching to EMV

There are various reasons why some merchants have delayed adopting EMV technology, aside from a lack of understanding of the liability shift. Some businesses are reluctant to invest in new hardware and software right away.

According to Guagenti, many business owners are concerned about the high cost of upgrading to an EMV terminal, especially for restaurants or businesses with multiple locations.

Merchants are already being held responsible for any fraud that occurs with EMV chip card customers, but they still haven’t been certified. Their new terminals are already set up and ready to go, but they still haven’t been certified.

Blang remains positive about the overall impact EMV will have on the business sector, despite the fact that it is a frustrating situation. Every day, EMV is becoming more popular as more and more providers are being certified and providing it to their customers. According to the Manta survey, 77 percent of small business owners who adopted EMV technology reported that the switch went well. It is important to remember that EMV is still in its infancy stage.

Perks of EMV

According to PYMNTS, MasterCard reported that fraud dollars dropped by 60 percent among its biggest EMV-enabled merchants.

According to Guagenti, upgrading to EMV-compliant terminals provides countless add-ons and supports mobile purchases with Apple Pay and Android Pay. Additionally, EMV technology allows customers to pay at the table and in the aisle, without ever having to leave their credit card in hand.

Guagenti said that today’s technology is making it simpler to integrate systems into legacy POS systems, and stand-alone systems are similar to older machines. Your new machines will give you a better customer experience and increased protection.

According to a survey of 2,000 U.S. adults by personal finance website NerdWallet, 78 percent of respondents said they like EMV cards, with 47 percent believing they make transactions more secure, and 48 percent think they are their favorite method of paying for things at the store.

Keep Moving Forward

According to Schulz, businesses that have not yet upgraded to EMV technology should do so as soon as possible. He warns that such upgrades are expensive, but he also believes that businesses that do not upgrade will be liable for losses resulting from future credit card fraud.

Despite the fact that EMV technology is a strong deterrent to fraudulent activity, it cannot protect consumers from all data breaches. Card-not-present fraud, which involves online, phone, or mail order purchases, is increasing and is likely to stay that way for years to come.

EMV technology is already the standard around the world and is shaping the future of payment processing, regardless of what new challenges may be on the horizon.