How EMV Will Change Credit Card Processing in the U.S.

By this time next year the switchover from magnetic stripe-based credit card processing to chip-based credit card processing will be in full swing in the United States. That’s the deadline set by two major credit card companies for merchant services providers like Merchant Express® to be able to support merchant acceptance of chip transactions.

Last summer, Visa® and MasterCard® announced their plans to accelerate the migration to EMV (also known as chip-and-PIN) and the adoption of mobile payments, which are based on the same technology. Chip-based payment cards are embedded with a microprocessor chip that contains the account information needed to complete a transaction.

Already the gold standard for credit and debit cards internationally, EMV is credited with reducing credit card fraud and enhancing international acceptance. Now it’s time for the U.S. to experience these smartcards firsthand.

Unlike mag stripe credit card processing that relies on point-of-sale authentication values that remain the same from transaction to transaction, EMV assigns a unique value for each transaction in a process called dynamic authentication. This technology has proven very effective in reducing a criminal’s ability to use stolen payment card data. In fact, if chip-and-PIN data is compromised and a counterfeit card is created, it would be useless at the point of sale.

“Adding dynamic elements to transactions makes account data less attractive to steal and takes more merchant systems out of harm’s way, shrinking the battlefield against criminals,” explained  Ellen Richey, chief enterprise risk officer, Visa Inc., last August when the company’s EMV initiative was announced. “The migration to chip technology will be an important security layer and a critical step in a comprehensive strategy to use dynamic authentication across all markets and all channels.”

Visa and MasterCard have both announced financial benefits and incentives for merchants and their merchant services providers to implement EMV-compatible terminals. For example, by this fall both companies will eliminate requirements for eligible merchants to annually validate their PCI compliance for any year in which at least 75 percent of their transactions originate from chip-enabled terminals. By October 2015, liability for a counterfeit card transaction that occurs at a merchant who has not switched over to a contact chip terminal will shift from the card issuer to the merchant services provider, who could then pass those costs along to the merchant through additional fees.

The ongoing transition to EMV/chip-and-PIN technology obviously requires a team effort from the credit card networks, issuing banks, merchant services providers and their merchant clients. Merchants who accept credit cards should start talking now with the provider of their credit card processing to meet or beat the deadlines imposed by Visa and MasterCard. Basically, this will require that the merchants upgrade their credit card terminals to process chip card transactions.

With more than 1.34 billion EMV payment cards already in circulation in more than 130 countries worldwide, the technology’s benefits are clear. Merchants should be prepared to reap those benefits as soon as they are able.