EMV compliance is only for card present in person transactions. Businesses that do not swipe transactions are not included in the October 1st, 2015 compliance deadline.
EMV has proven to successfully fight payment card fraud. EMV is an abbreviation for Europay, MasterCard and Visa, the three organizations that developed the initial specifications. EMV is an open-standard set of specifications for encrypted smart chip payments and acceptance devices. The EMV specifications were developed to define a set of requirements to ensure a higher level of security between chip-based payment cards and terminals. EMV chip cards contain embedded microprocessors that provide strong transaction security features and other application capabilities not possible with traditional magnetic stripe cards. Today, EMV is owned by American Express, Discover, JCB, MasterCard, Union Pay, and Visa, and includes other organizations from the payments industry participating as technical and business associates.
Where has EMV been adopted?
Eighty countries globally are in various stages of EMV chip migration, including Canada and countries in Europe, Latin America and Asia, as of December 2013:
- 37 billion chip payment cards are in use
- 9% of terminals in Europe are chip-enabled
- 7% of terminals in Canada, Latin America, and the Caribbean are chip-enabled
- 3% of terminals in Africa and the Middle East are chip-enabled
- 7% of terminals in Asia Pacific are chip-enabled
The United States is one of the last countries to migrate to EMV chip technology. American Express, Discover, MasterCard and Visa have all announced their plans for moving to a chip-based payments infrastructure in the U.S.
October 2015 was long seen as a key milestone because of the liability shift associated with that date. You see, after that date, merchants without EMV capability in their POS system will hold the liability for transactions with counterfeit cards. However, as you well know, it takes time and a lot of money to replace magnetic stripe cards with EMV cards. That’s why many financial institutions use expiration cycles to issue new cards, and this simply takes time. For quite some time people have been asking when chip cards will become popular in the United States. After all, we had been hearing about EMV for years, but the roll-out was extremely slow because of the high cost to issue chip cards and merchants were slow to install new POS devices with chip card readers.
The EMV chip generates a unique code called a cryptogram with each and every transaction. This code is then used to verify that the purchase is being made with a legitimate card and is what makes it virtually impossible for criminals to counterfeit EMV cards.
When the retail shopping giant Target, had their major breach that helped expedite the roll out of EMV in the United States, but expert forecasts vary widely on when EMV will become commonplace in the U.S. We’ve seen estimates from experts in the field of credit card processing in the U.S. anywhere from 270 million to 650 million smart cards will be issued by the end of 2015. This means that anywhere from 23%-54% of cards in the U.S. will have EMV capability. Either way, we will definitely see a significant jump in the number of EMV cards in the U.S. in 2015.
One of the biggest problems EMV is facing right now in the United States is restaurant tip adjusting. Right now, the way EMV works the card information is not stored in the POS terminal when the chip transaction is processed. Currently only swiping the magnetic strip will store the credit card information to process a tip after a customer leaves the restaurant or other tipping environment. So come October 2015 you will notice most tipping establishments especially restaurants will not be participating in the EMV migration. Just to clarify, processing an EMV transaction can still be done in a restaurant. The problem is the customer will have to tip at the time of sale and the extra time needed to adjust all the tips possibly could cause a line to form out the door in a high traffic environment. No business owner wants to have their employees pressure their customers by asking everyone if they want to include a tip at the time of sale.
We have a long ways to go before EMV is used by all businesses in the US, the good news is the shift on the fraud liability is not on every chargeback, it’s only on counterfeit card reason codes. To give you an example of a counterfeit card that would be like a prepaid credit card that was recoded with a stolen person’s credit card information. The interesting thing is if someone walked into your store now with a counterfeit credit card that was recoded with new data you would still get a chargeback even if you processed the transaction properly. The only real difference after October 2015 will be if you have an EMV terminal and you had a copy of the receipt from the counterfeit card transaction you would win the chargeback but if you didn’t use an EMV terminal to process the counterfeit card transaction you would lose the chargeback. At this point you need to weigh the risk and consider how many counterfeit transactions you encounter per year. Participation in the EMV program is not mandatory when it comes to accepting credit cards, you will still have a choice.