- Why Choose Us? We provide results, not just advice
- Who We HelpThe companies we solve problems for
- How We Help YouThe expert help we provide
In this blog we look at what EMV in the US means and how you should prepare for it. You can read more in-depth analysis in our companion whitepaper, What EMV migration means for US payment firms.
For many years, the US payments sector resisted growing pressure for the adoption of EMV, the chip card payments standard created by Europay, MasterCard and Visa in the 1990s. But a tipping point in global adoption has been reached with over 1.3 billion EMV payment cards in global circulation and more than 20 million terminals active worldwide, according to EMVCo. Now, the EMV standard is set to be introduced to the US market at last following recent announcements by Visa and by MasterCard with details of mandates for EMV migration starting in 2013.
The EMV standard was created as a means to authenticate a card and the cardholder to reduce the instances of fraud by using an embedded chip in the card and encryption software. The use of an EMV chip to power payments transactions is a dramatic departure from the magnetic stripe. It places authentication intelligence on the card, fundamentally changing the nature of the end-to-end payment transaction. It changes the authentication method, the role of the terminal, and the nature of the data transmitted during each transaction, all of which creates expense in implementing EMV chip cards for the first time and maintaining them going forward. But this cost can be offset by a significant reduction in the cost of fraud and in the cost of expensive anti-fraud measures such as compliance with the Payment Card Industry Data Security Standard (PCI DSS), also known as PCI compliance. EMV chip also opens up possibilities for application intelligence on the card. This, in turn, creates significant commercial opportunities to offset the expense of migrating to EMV. The EMV standard also enables global interoperability. This will address problems US travelers sometimes encounter when using their magstripe cards overseas in a global chip card environment, a problem that has been growing as the rest of the world moves to EMV chip.
For US card issuers, acquirers and merchants, the reality is that EMV is coming. The challenge is to learn from the experience of migrating to EMV in other countries and transition to EMV with the minimum of fuss while maximizing the commercial potential of this new standard.
According to Visa, effective 1 April 2013, acquirers and payment processors will be required to support merchant acceptance of EMV chip transactions. And, in October 2015 a liability shift will saddle merchants with losses for fraudulent transactions that could have been prevented if the merchants had installed EMV terminals. Gasoline retailers have two additional years to comply.
Visa’s plans include requirements for acquirer processors to support EMV chip acceptance and the introduction of US liability shift policies. In this case, chip acceptance includes support for near-field communications (NFC) contactless payments. Visa’s plans incentivize merchants to upgrade to EMV dual interface terminals (chip and contactless) by saving on PCI compliance costs. In fact some see the drive by Visa for EMV in the US as being as much about supporting contactless payments as trying to ensue greater payment transaction security.
Now that EMV has been mandated by two of the main payment schemes for 2013, US payments firms need to start planning for it. The first stage is to build awareness of the step change between EMV and magstripe in your card business. An EMV infrastructure contains more interactions, nuances and options for features than magstripe. These include Online and Offline Authentication and Authorization, multiple Cardholder Verification Methods (CVM), requirements for global interoperability, and options to deliver multiple applications on the card. The next thing to recognize is that US firms face a different migration path to other countries. Unlike other countries, the US won’t have a gentle run-in to EMV as a result of years of piloting and working towards the goal of deploying EMV so it will be a much steeper learning curve. However, there are opportunities to learn valuable lessons from other countries who have already implemented EMV. These lessons can help to define scope, reduce cost, and ensure a more seamless transition to EMV. Finally, the US is the most advanced card market still using magstripe. It’s implementation of EMV will be unique selecting EMV configuration options that leverage the strength of existing online communications infrastructure available in the country and taking advantage of opportunity for a parallel implementation of contactless technology. In the view of the Smart Card Alliance, “The U.S. may evolve to a hybrid combination of options to best support venue, transaction type, and compatibility with the rest of the world.”
We examine the question of the US migration to EMV in more detail in our free guide, “What EMV Migration means for US Payment Firms“.
In this case study we discuss how Bayberry helped to design and launch the credit union prepaid card business for the Association of British Credit Unions