Does EMV Make Credit Card Processing More Secure?

There has been a lot of discussion in recent months about the imminent arrival in the United States of EMV credit cards (also called “chip and PIN” cards), especially since both Visa® and MasterCard® recently announced that they will encourage merchants to start accepting the cards. Several arguments can be made in favor of the switchover, including the often-touted greater security features that EMV technology offers when it comes to credit card processing.

The acronym EMV stands for “Europay-MasterCard-Visa”, the developers of the card. EMV cards rely on an embedded microprocessor chip to encrypt transaction data differently for each purchase. This feature makes it more difficult for criminals to capture and use stolen account information for fraudulent purchases.

The chip, coupled with the cardholder’s PIN (personal identification number), has been widely hailed as being more advanced and safer than the magnetic strip that is the basis of credit card processing in the U.S. The payment information contained on the mag strip remains the same, or static, making it easier for thieves to lift the data and transfer it to a fake card that they can use or sell to others.

While mag strip vs. EMV comparison data is hard to come by, a study released in late 2011 by Financial Fraud Action UK supports the superior security claims of the latter. It reports that total fraud losses on credit cards in the U.K. fell 9 percent between January and June 2011 compared to the same period the year before. The half-year total was the lowest in 11 years and the third consecutive decrease. The steep drop was attributed to such industry initiatives as the increasing use of fraud detection software, the roll-out of updated chip cards and the increasing use of chip and PIN technology abroad.

Chip and PIN technology is already established in Europe, Latin America, Asia and elsewhere in the world, but its adoption has lagged behind in the U.S. Industry analysts say that’s because American consumers haven’t demanded the cards and merchants are averse to spending money to upgrade technology when demand for it is low to nonexistent.

However, two major banks — JP Morgan Chase and Wells Fargo — have begun issuing chip-and-PIN cards to customers who have encountered difficulties using their mag strip cards while traveling in countries where EMV technology dominates the payments landscape. Given the global nature of the marketplace today — and the fact that major banks and credit card companies are hopping aboard the EMV Express — can the rest of us be far behind? When the payoff is more secure credit card processing and less credit card fraud, the answer to that question seems pretty clear.