Payment card fraud is a major problem around the world, but it’s particularly rampant in the United States. According to Business Insider, the global cost of payment card fraud reached $14 billion in 2013, with $7.1 billion in the United States alone.
To help protect against fraud, payment card companies have turned to EMV payment cards. EMV, which stands for Europay, MasterCard, and Visa, is a payment card standard first published in 1995. The standard was quickly adopted by many countries, but unfortunately the United States continued to use the traditional magnetic stripe cards.
Following several large payment card breaches in 2012, U.S. payment card companies announced plans to migrate to EMV payment cards by October 1, 2015. Though this date is frequently called a deadline, older payment cards and point-of-service (POS) terminals will still work fine afterwards. The deadline instead refers to a change in liability, known as the liability shift. After that date, companies without EMV-compatible POS terminals will become liable for fraud instead of payment card companies.
The EMV standard
EMV payment cards have computer chips embedded in them. These cards are also known as smart cards, chip cards or IC cards. While magnetic stripe cards are swiped through POS terminals, EMV cards are inserted into them.
EMV cards are more secure than magnetic stripe cards because they create a unique transaction code each time they’re used. These codes can’t be used again. If the transaction information is stolen, any attempt to re-use that information would result in the card being declined. In contrast, magnetic stripe cards store data that doesn’t change with each transaction, so they are easily exploited.
These improvements to payment security are being welcomed by consumers with open arms. According to Carolyn Balfany, MasterCard’s Group Head for U.S. Product Delivery, consumers and payment card companies both believe that EMV cards will offer better protection against fraud. Research conducted by MasterCard reveals that 63% of consumers want EMV cards as quickly as possible and 87% of consumers are comfortable with making the switch.
The EMV Migration
The migration to EMV depends on rolling out both new payment cards to consumers and new POS terminals to merchants. Overall, the United States has over 775 million cards and 10 million POS terminals that need to be moved over to the new EMV standard.
Payment card companies have already made significant progress in getting the new cards to consumers. To date, more than 120 million Americans have received EMV cards. By the end of 2015, nearly 600 million cards will be issued according to the Smart Card Alliance.
These cards include both the chip and magnetic stripe so that they work in both EMV and magnetic swipe POS terminals. However, credit card companies are pushing merchants to use the new EMV POS terminals. Depending on the situation, liability will shift to the merchant starting October 1, 2015.
- If the customer has an EMV card but the merchant uses a magnetic swipe POS terminal to process a transaction, the merchant is liable.
- If the customer has an EMV card and the merchant uses an EMV POS terminal to process a transaction, the credit card company is liable.
- If the merchant has an EMV POS terminal but the credit card company hasn’t issued the customer an EMV card, the credit card company is liable.
The credit card companies’ liability shift isn’t to be taken lightly. If your company accepts physical credit cards, you could be liable for any processed fraud unless you upgrade to EMV POS terminals before October 1st.
Affected companies should consider which EMV POS terminals to use with their payment card processing service. There are also other considerations to take into account, such as NFC – the technology which allows for Android Payments and Apple Pay.
Need help preparing for the EMV deadline? Contact us today to discuss the best options for your company.