8 FAQs about EMV credit cards
Chip? PIN? Signature? Will old cards work? Answers to frequently asked questions
The nationwide shift to EMV is well underway.
EMV — which stands for Europay, MasterCard and Visa — is a global standard for cards equipped with computer chips and the technology used to authenticate chip-card transactions. In the wake of numerous large-scale data breaches and increasing rates of counterfeit card fraud, U.S. card issuers are migrating to this new technology to protect consumers and reduce the costs of fraud.
“These new and improved cards are being deployed to improve payment security, making it more difficult for fraudsters to successfully counterfeit cards,” says Julie Conroy, research director for retail banking at Aite Group, a financial industry research company. “It’s an important step forward.”
For merchants and financial institutions, the switch to EMV means adding new in-store technology and internal processing systems, and complying with new liability rules. For consumers, it means activating new cards and learning new payment processes.
Most of all, it means greater protection against fraud.
Want to know more about the transition and your new EMV chip-equipped credit card? Here are eight frequently asked questions to help you understand the changes.
1. Why are EMV cards more secure than traditional cards?
It’s that small, metallic square you’ll see on new cards. That’s a computer chip, and it’s what sets apart the new generation of cards.
The magnetic stripes on traditional credit and debit cards store contain unchanging data. Whoever accesses that data gains the sensitive card and cardholder information necessary to make purchases. That makes traditional cards prime targets for counterfeiters, who convert stolen card data to cash.
|WAIT, WHAT’S THE CARD CALLED?|
|As the U.S. payment industry transitions to EMV technology, there’s a lot to adjust to, starting with what to call the new cards. They might be called any of the following terms:
“If someone copies a mag stripe, they can easily replicate that data over and over again because it doesn’t change,” says Dave Witts, president of U.S. payment systems for Creditcall, a payment gateway and EMV software developer.
Unlike magnetic-stripe cards, every time an EMV card is used for payment, the card chip creates a unique transaction code that cannot be used again.
If a hacker stole the chip information from one specific point of sale, typical card duplication would never work “because the stolen transaction number created in that instance wouldn’t be usable again and the card would just get denied,” Witts says.
EMV technology will not prevent data breaches from occurring, but it will make it much harder for criminals to successfully profit from what they steal.
Experts hope it will help significantly reduce fraud in the U.S., which has doubled in the past seven years as criminals have shied away from countries that already have transitioned to EMV cards, Conroy says.
“The introduction of dynamic data is what makes EMV cards so effective at bringing down counterfeit card rates in other countries,” she says.
2. How do I use an EMV card to make a purchase?
Just like magnetic-stripe cards, EMV cards are processed for payment in two steps: card reading and transaction verification.
However, with EMV cards you no longer have to master a quick, fluid card swipe in the right direction. Chip cards are read in a different way.
“Instead of going to a register and swiping your card, you are going to do what is called ‘card dipping’ instead, which means inserting your card into a terminal slot and waiting for it to process,” Conroy says.
When an EMV card is dipped, data flows between the card chip and the issuing financial institution to verify the card’s legitimacy and create the unique transaction data. This process isn’t as quick as a magnetic-stripe swipe.
“It will take a tiny bit longer for that transmission of data to happen,” Witts says. “If a person just sticks the card in and pulls it out, the transaction will likely be denied. A little bit of patience will be involved.”
3. Is card dipping the only option?
Not necessarily. EMV cards can also support contactless card reading, also known as near field communication.
Instead of dipping or swiping, NFC-equipped cards are tapped against a terminal scanner that can pick up the card data from the embedded computer chip.
“Contactless transactions are more consumer-friendly because you just have to tap,” said Martin Ferenczi, president of Oberthur Technologies, the leading global EMV product and service provider. “Around the world, there is a move to make EMV cards dual-interface, which means contact and contactless. However, in the U.S., most financial instructions are issuing contact cards.”
Dual-interface cards and the equipment needed to scan them are expensive. Right now, the first step is to successfully integrate EMV cards into the U.S. shopping scene. Dual interface will arrive later, according to Ferenczi.
4. Will I still have to sign or enter a PIN for my card transaction?
Yes and no. You will have to do one of those verification methods, but it depends on the verification method tied to your EMV card, not if your card is debit or credit.
|CHIP CARDS, BY THE NUMBERS|
|1.2 billion: Estimated number of credit and debit cards that have to be upgraded to chip cards.
12 million: Estimated number of point-of-sale terminals that have to be upgraded to accept chip cards.
400-500 million: Estimated number of chip cards that will be in consumers’ hands by the end of 2015.
670,000: Estimated number of merchant locations currently ready to process chip card payments.
25%: Percentage of US. debit cards that will be issued as EMV cards by the end of 2015.
60%: Percentage of consumers with a chip card as of October 31, 2015.
$3.50: Average cost for issuing a new EMV card.
$500-$1,000: Average cost of an EMV-compliant point-of-sale terminal.
Sources: Aite Group, Payments Source, 2015 PULSE Debit Issuer Survey, Payment Security Task Force, Visa; Ingenico Group; Smart Card Alliance
Chip-and-PIN cards operate just like the checking-account debit card you have been using for years.
Entering a PIN connects the payment terminal to the payment processor for real-time transaction verification and approval. However, many payment processors are not equipped with the technology needed to handle EMV chip-and-PIN credit transactions. So it is not likely you will have to memorize new PINs anytime soon, according to Conroy.
“There aren’t going to be many issuers requiring a PIN,” she says. “A vast majority will be issuing chip-and-signature cards, which aren’t all that different from how credit cards work now.”
As with a magnetic-stripe credit card, you sign on the point-of-sale terminal to take responsibility for the payment when making a chip-and-signature card transaction.
U.S. chip-and-PIN cards will be transitioned in slowly, according to Ferenczi.
“The card production demand today is really based on chip-and-signature cards,” he says. “It will probably take two to three years to fully convert to chip-and-PIN.”
Despite a slow transition overall, those who get chip-and-PIN cards will be able to use them right away.
“If a terminal doesn’t have the ability to accept a PIN, it will then step down to accepting a signature,” says Randy Vanderhoof, executive director of the Smart Card Alliance. “There will always be a secondary option.”
5. If fraud occurs after EMV cards are issued, who will be liable for the costs?
Today, if an in-store transaction is conducted using a counterfeit, stolen or otherwise compromised card, consumer losses from that transaction fall back on the payment processor or issuing bank, depending on the card’s terms and conditions.
Following an Oct. 1, 2015 deadline created by major U.S. credit card issuers MasterCard, Visa, Discover and American Express, the liability for card-present fraud shifted to whichever party is the least EMV-compliant in a fraudulent transaction.
Consider the example of a financial institution that issues a chip card used at a merchant that has not changed its system to accept chip technology. This allows a counterfeit card to be successfully used.
“The cost of the fraud will fall back on the merchant,” Ferenczi says.
The change is intended to help bring the entire payment industry on board with EMV by encouraging compliance to avoid liability costs.
Today, any parties not EMV-ready could face much higher costs in the event of a large data breach.
Automated fuel dispensers will have until 2017 to make the shift to EMV. Until then, they will follow existing fraud liability rulings.
See 7 merchant tips to understanding EMV fraud liability shift for answers to more specific liability shift questions.
6. So since Oct. 1, 2015 has passed, the transition to EMV technology is complete?
Although the deadline was strong encouragement for all payment processing parties to become EMV-compliant as soon as possible, not everyone has made the transition yet.
“It’s going to take a little time to adapt,” says Doug Johnson, vice president of risk management policy for the American Bankers Association.
EMV debit cards in particular are rolling out at a slower pace. The PULSE 2015 Debit Issuer Survey found that while 90 percent of financial institutions have begun issuing EMV debit cards or will do so by the end of the year, only 25 percent of U.S. debit cards (about 71 million cards) will be chip-equipped by the end of 2015. The percentage of EMV debit cards in consumer’s hands is expected to reach 73 percent by the end of 2016 and 96 percent by the end of 2017.
So far, the large majority of chip cards going into the hands of cardholders are coming from larger issuers like Bank of America and Chase, according to the Federal Reserve Bank of Chicago. The cost of this EMV transition is causing smaller banks to convert their cards more slowly.
EMV debit cards may be issued at an even slower pace as banks have to prep their software to accept those new cards as well, according to Ferenczi.
Overall, while many chip cards have already been issued, some people may have to wait longer than others before sent a new EMV card, according to Johnson.
“Different companies will have different rollout strategies,” says Johnson. Some will base their actions on card expiration dates; others will work to get chip cards into the consumer’s hands as soon as possible. (See ‘Smart chip’ debit card transition going slowly? for more EMV debit card rollout details.)
7. If I want to use my chip-card at a retailer that doesn’t support EMV technology yet, will it work?
Yes. The first round of EMV cards — many of which are in consumers’ hands — will be equipped with both chip and magnetic-stripe functions so consumer spending is not disrupted and merchants can adjust.
|WHAT ABOUT MOBILE PAYMENT READERS?|
|Retailers using mobile payment devices such as Square will also have to purchase new equipment to read the chips on EMV cards. Square has designed EMV-compatible card readers for Android and iOS devices that can read contactless mobile payments and also process dipped chip cards. Merchants can currently pre-order the new payment devices for $49.
Until Square-based retailers upgrade, your new EMV cards will be processed without the added layer of encryption security the card chip provides.
If you find yourself at a point-of-sale terminal and are not sure whether to dip or swipe your card, have no fear. The terminal will walk you through the process.
“For example, if you enter a card into the chip reader slot but the reader isn’t activated yet, it will come up with an error and you’ll be prompted to swipe the card in order to use it,” Vanderhoof says.
“If a consumer tries to swipe a chip card instead of inserting it, an error will appear and they will be prompted to insert the card for chip processing instead,” Vanderhoof says.
If chip-card readers are not in place at a merchant at all, your EMV card can be read with a swipe, just like a traditional magnetic-stripe card.
“You can still conduct transactions, you just lose that extra level of chip security,” Johnson says.
Many large retailers, such as Walmart, Target and Costco, have upgraded their POS terminals and are activating them for chip card acceptance, but smaller businesses may be lagging when it comes to upgrading their payment technology. An early October TD Bank survey found that just 41 percent of small businesses have installed EMV terminals and another 40 percent plan to make the transition soon, once any migration obstacles are addressed.
However, major card networks such as Visa and MasterCard have evidence that many merchatns have switched to EMV following the October 1 liability shift. Visa reported 529,000 chip-enabled merchants locations as of October 31 — a 49 percent increase since September. MasterCard reported 626,000 chip-enabled merchants in late October.
8. Will I be able to use my EMV card when I travel outside the country?
Yes and no.
The U.S. is the last major market still using the magnetic-stripe card system. Many European countries moved to EMV technology years ago to combat high fraud rates. That shift has left many U.S. consumers who have magnetic-stripe cards looking for other forms of payment when they travel.
Since many foreign merchants are wary of magnetic-stripe cards, consumers who hold some type of chip card may run into fewer issues than those without one, according to Ferenczni.
“Just the existence of the chip will likely make European merchants more willing to accept transactions that they wouldn’t have likely accepted if a customer presented a mag-stripe card,” he says.
However, chip-and-PIN cards are the norm in most other countries that support EMV technology. So consumers with chip-and-signature cards may find some merchants who are unwilling or unable to process their card, even though it does have an embedded chip.
But despite any difficulties in the transition, Ferenczi says the change is a step in the right direction.
“Nobody likes to think that his or her card is being secretly used for other purposes,” he says. “So I think regardless, there is a level of comfort knowing that it will be far more difficult to counterfeit EMV cards.”
Source: Sienna Kossman (February 4, 2016). Retrieved from CreditCards.com