EMV refers to bank and credit cards that are embedded with data chip. The initials EMV stand for Europay, Mastercard, and Visa because those companies worked together to develop chip-embedded payment technologies. The innovation was designed as a response to the high incidents of in-store fraud possible with magnetic strip cards. Using stolen credit and debit cards was not difficult because there was a time lapse between the actual purchase transaction, and verifying the information. A criminal could make purchases, or gain access to cash advances, for a few days before any fraud was suspected. The result was losses for customers, merchants, banks, and credit card companies.
How a EMV Chip Works
The EMV chip allows information to be verified instantly. It compares the information in the chip with the signature, or personal identification number (PIN), of the customer at the point of service (POS) terminal. Any discrepancies result in the denial of the transaction. There is no question of human error, no interpretation of the signature to confirm a match, and no way to override the denial.
Another way the chip increases security, for both customers and merchants, is by being difficult to hack or replicate. A magnetic strip can be read via illegal electronic devices. That allows criminals to use the information on the strip to gain access to accounts. They can go online, enter the appropriate information, and make purchases, transfer money out of your bank account, and steal your identity. The process is virtually impossible to conduct with a chip.
Reasons for Slow Conversion
EMV cards issued at the current time still have a magnetic strip on them so they can be used at terminals without chip reading capability. If the terminal has a chip reader, the card will not respond to being swiped. If there is no chip reader, the card will operate when swiped. That means there is still a risk to all parties involved. The initial push to convert to using only terminals for chip-embedded cards has been slow on the part of banks and merchants.
One reason is that merchants and banks must purchase new chip readers. The cost can be expensive, depending on the number of checkout counters in the store, and the number of outlets a business currently operates. The guidelines for conversion are not mandatory, so many merchants and banks have declined to make the investment. Changes in guidelines were introduced in an EMV Update.
Liability Increases for Merchants
The EMV Update, which was effective October of 2015, imposes increased liability, and expenses, for merchants who chose not to switch readers. Transaction fees for magnetic strip transactions, for example, are higher than those charged for transactions using a chip reader terminal. Losses due to fraud may also become the responsibility of the merchant in some cases.
If a customer presents a chip-embedded card for a payment, but has to swipe the card in the absence of a chip compatible terminal, the merchant is responsible for any fraudulent losses. The initial investment to convert to chip-reading terminals does provide a high return for merchants in lower costs per transaction, lower liability risks, and less in-store fraud.