News & Events

What You Need to Know About EMV Transition in the U.S.

September 23 2015 | By Helen Baginska

What You Need to Know About EMV Transition and Liability Shift

The United States is in the middle of a technological shift. As a U.S. merchant, it is extremely important to understand what changes you can expect within the next few weeks and how EMV will change the way transactions are processed.

You may have already received a new card from your bank with the square-shaped smart chip in the upper left front facing side. It's a new EMV technology that will soon become standard.

EMV (Europay, Mastercard, Visa) is an advanced global standard designed to help reduce credit card fraud. An estimated 7.5 billion U.S. dollars were lost in 2015 due to fraud.

Many merchants are not yet aware of the upcoming liability shift when the cost of fraud will shift from the issuing bank to the merchants. Wells Fargo reported that only 49% of business owners are aware of the upcoming liability shift, and only 78% of SMB retailers are EMV ready.

The liability shift according to MasterCard: the merchant, who doesn't support EMV, assumes liability for counterfeit or fraudulent transactions.

What this means for merchants is that if the customer has an EMV chip card and the merchant's equipment is not able to accept the EMV Card, it would be very easy to charge the swiped transaction back as the chargeback case would be automatically lost because the EMV chip card wasn't read through EMV chip reader.

Why is EMV technology better?

Non-static data Current magnetic strip (magstripe) cards store information on the card itself. This makes them relatively easy to copy and counterfeit. However payment card data on EMV cards is in constant flux: the smartchip on these cards is a small computer. A unique identification number is generated each time an EMV card is used to make a payment. This feature makes the EMV card nearly impossible to copy.

Lower susceptibility to "skimmers" Fraudsters do not need to steal a physical payment card in order to steal payment card information. Devices known as "skimmers" exploit the vulnerability of the previously mentioned magnetic strips by reading the card and stealing the embedded data. These devices can be hidden in public ATMs, card readers, or on a POS device. Although the card is returned to the cardholder, the card data remains behind in the "skimming" device.

Chip and Signature There are EMV credit cards that require a signature, similar to traditional swipe and sign. The chip and signature technology still takes advantage of the added security offered by the smartchip, but without the PIN. The card's EMV chip will be read by the chip reader, but the cardholder will be required to sign the paper receipt.

Chip and PIN There are also EMV credit cards in use that require a PIN for purchases, similar to a debit card. The added verification offered by chip and PIN makes EMV technology increase the level of security over traditionally swipe and sign authentication. In the event that a counterfeit card is created, the genuine PIN would still be required in a card present environment.

Industries and Functions Most Affected

One of the industries that will be directly affected by the new technology is the restaurant industry.

Customers are accustomed to handing over the credit card, waiting for the receipt, filling out the tip line, and then signing to authorize the total amount of the meal with tip. Once EMV technology is introduced, customers will need to take their own cards to the terminal. Cardholders will be required to tip at the time of sale; in other words, the tip will need to be entered by the cardholder into the terminal, rather than written onto a tip line on the receipt. For merchants using a wireless terminal, the introduction of EMV technology means that restaurant customers will be able to enjoy "pay at the table" service—instead of the card going to the terminal, the terminal will come to the card and the total sale amount will be authorized on the terminal itself. The "tip at the time of sale" feature has really taken off in Canada, Europe and Mexico over the past several years, particularly since cardholders no longer need to allow the payment card to leave their possession.

Merchants that use a "store and forward" function on the terminal will also be directly impacted by the EMV switch. This function allows the terminal to store card information when there is no connection available. The data will be "pushed through" once connection is re-established. With EMV technology, authorization must be obtained when the card is inserted into the chip reader. If you are a merchant that uses this function because of an unreliable connection (often the case on dial), you may want to consider switching the type of connection used (e.g. IP).

The industry is changing; the sooner you make the switch to EMV technology, the better it is for you and your customers. Pivotal Payments facilitated an EMV switch for our merchants in Canada several years ago, and we are ready to help you through this transition.

Best Regards,
Helen Baginska

Resources used: "The Huffington Post"

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