The look and feel of credit cards is evolving with the introduction of EMV card technology. After the recent large-scale hacking incidents with online and offline retailers as well as the need to address other potential fraud, credit card companies have turned to a new type of technology to reassure consumers and businesses. Since you will most likely be getting one of these credit cards as major banks and other credit card issuing companies are now migrating to EMV card technology, it’s important to know how we got to this point and the benefits it will bring.
What is EMV and How Does it Work?
EMV (taken from a combination of the Europay, Mastercard, and Visa names, the three credit card companies that developed the technology) uses dynamic digital data in every transaction. This means that every transaction becomes unique and difficult to replicate. While some use the term, EMV, other names for these types of credit cards include “Chip and PIN” and “Chip and Signature.” In the U.S., these cards may also go by names like “Smart-Chip Card,” “Smart Card,” or “Chip Card.”
Credit and debit card payments are made with a card that has a microprocessor chip. This card works by being inserted into an EMV-enabled device and then entering a PIN. This two-part verification process substantiates credit card ownership by the payee as the transaction takes place. While there are other verification processes used as well, including cryptographic authentication, this provides the general idea that more is being done to check the validity of each transaction than previously with credit or debit cards that only relied on a magnetic stripe.
In looking at the history of EMV, it’s not necessarily that new. In fact, according to available research, this technology was first used in France in 1992. It has been more rapidly disseminated throughout Europe with other countries now following suit.
Growth in EMV Numbers
EMVCo, the company behind the technology and jointly owned by American Express, Discover, JCB, Mastercard, Visa, and UnionPay, illustrates that these credit cards are gaining ground regarding acceptance. In 2014, only 32% of all chip card-present transactions used EMV technology, compared to 29% in 2013. As of 2015, there are over 3.4 billion EMV payment cards, a 43% increase from 2013 numbers.
The number is much smaller in the United States where only .12% of all transactions were EMV chip-based. With more consumers and businesses now learning about the benefits of the technology and rollout of new card reissues and readers across the retail environment, this number is expected to increase rapidly within the next year.
The slowest migration to EMV is among debit cards in the U.S. A PULSE 2015 Debit Issuer survey found that only 25% of U.S. debit cards would be chip-equipped by the end of 2015. However, these companies estimated that they would be able to have 73% of the debit cards switched over by the end of 2016 and 96% by the end of 2017.
EMV Card Technology Benefits
The primary benefit of EMV card technology is that it significantly reduces the risk of fraud, making online and offline transactions much more secure for the consumer. While data from a traditional magstripe card can be easily copies with just a card reading device, the new EMV technology stops that from happening. A CardHub article gathered some of the startling statistics about credit and debit card fraud in recent years:
- A July 2015 Nilson Report found that the amount of fraud in the U.S. led to losses of $16.31 billion in 2014 with 62% of the loss realized by card issues and 38% by merchants.
- The same report found that the U.S. accounted for 48.2% of the total payment card fraud losses around the world.
- Retailers spend upwards of $6.47 billion to stop credit and debit card fraud, according to a February 2012 Payments Journal
- A 2013 ABA Deposit Account Fraud Survey found that financial institutions realized losses of $942 million in 2012 from debit card fraud, a 20% from 2008 losses.
- A 2012 Javelin Strategy & Research report found that 67% more Americans were impacted by financial data breaches in 2012 than in 2010.
The concern over fraud and hacking has been the primary concern of consumers and the bane of retailers that are then stuck having to explain why their systems were compromised. For the cost to the issuing credit or debit card company to issue a new card and the merchant to purchase a new terminal to accept these cards, the cost is minimal compared to the expense related to fraud and liability.
Beyond this important benefit, EMV cards offer significant cost savings for retailers related to transaction fees if they follow specific rules issued by the companies behind EMVCo. With an upcoming Payment Branding ruling that will shift the liability of card-present counterfeit and fraud situations to the retailer who does not invest in the chip-enabled technology, there is even greater incentive to migrate to EMV.
A Complete Shift Underway
While most retailers in the U.S. have been asked to make the switch by the end of 2015, individual businesses like pay-at-the-pump gas stations have until 2017 to change out their payment machines. Banks and other card issuers are providing training for merchants to ensure they understand the vast differences between EMV acceptance and traditional card acceptance. As the complete shift to EMV card technology marches on, there will be sure to be changed within the payments industry.