The EMV conversion represents one of the biggest changes in the history of payments. Unfortunately, there is quite a bit of confusion and misinformation regarding exactly what merchants need to do to comply with these new requirements. To fully explain a merchant’s role in EMV, we must first understand what is driving EMV and how it works.

EMV is named for Europay, MasterCard and Visa, the three payment organizations that have been the force behind smartcard technology since its introduction in Europe over 20 years ago. The idea is to replace the magnetic stripe on credit cards with a microchip. The first magnetic stripe appeared on a credit card in 1971. Forty-four years later that technology is still in use and largely unchanged – and being used to store our most sensitive information.

While credit card fraud can occur in a variety of ways, the counterfeiting of cards has become a major problem. Criminals acquire credit card information and embed it into the magnetic stripe of a counterfeit card. When network data breaches occur, such as the high profile incursion at Target in 2013, the card information obtained often finds its way to counterfeit cards used at the point-of-sale. Additionally, card skimmers placed by criminals at ATMs, fuel pumps and exposed terminals can capture data from magnetic stripes. How big of a problem is this? Almost 50% of worldwide credit card fraud occurs in the U.S., even though we account for only 25% of worldwide credit card volume. It is expected that retailers, card issuers and consumers will be on the hook for nearly $10 billion this year due to credit card fraud and counterfeiting.

EMV chips can finally provide a high tech solution to the problem. Instead of the magnetic stripe, cardholder data is stored on an encrypted microchip and transmitted to the terminal using a random string of cryptographic keys known as a token. The token passes through the terminal and is translated by the processor, meaning that no sensitive cardholder data is left with the merchant. Each transaction generates a unique code, so even if the transaction data were somehow obtained it could never be reused. And creating counterfeit cards is no longer a simple proposition due to the complexity of the secure and encrypted microchip.

How well does it work? Since the introduction of EMV chip cards, U.K. retailers have seen a 72% drop in point-of-sale fraud. And Canadian businesses have experienced a 91% reduction in chargeback volume. Unfortunately, the U.S. is the last developed nation on earth to adopt chip card technology.

That is now changing, as the EMV conversion process began in the United States several years ago. Processors were required to have their systems updated for EMV by the end of 2013. And card issuers, particularly the major banks such as Chase, Bank of America, Capital One and Citibank, have begun sending EMV cards to their customers. Smaller card issuing institutions such as community banks will take longer to convert to the chip process, but by the end of 2015 about 65% of cards in the marketplace contained an EMV chip. By the end of 2017, that number is expected to rise to 98%. Currently, cards are being issued with both EMV chips and magnetic stripes, but issuers will begin eliminating the stripes as early as next year.

The final phase of the EMV conversion process will shift to the merchant, as it will be expected that should be able to accept EMV chip cards at the point-of-sale. For many businesses, this will require new equipment capable of handling EMV transactions. The consequences of being unprepared can be dramatic, as new guidelines will be in place determining financial liability for fraudulent credit card transactions.Formerly, liability for most point-of-sale card fraud lies with the card issuing bank. After the EMV era, however, any merchant not using EMV compatible equipment when presented with a chip-enabled card will be fully liable for any fraud that occurs as a result of that transaction. This could cost unprepared merchants thousands of dollars, a potentially crippling expense that could be avoided by simply ensuring all processing equipment is EMV ready.

As always, being an informed consumer is vitally important in times of transition. As the deadline approaches, it is imperative that merchants ensure they are EMV ready and seek guidance into the steps necessary for compliance.

Our customer service team is always ready to answer any EMV related questions. Contact us now!











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