What are EMV Chip Cards?
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.
Most credit and debit cards issued to American consumers now come equipped with an EMV smart chip on the front, and a magnetic strip on the back. The United States was one of the last countries in the world that was still using magnetic strip card technology. Magnetic strip technology is decades old and is fairly easy to intercept and reproduce. The new and improved cards are being deployed to improve payment security, making it more difficult for fraudsters to successfully counterfeit cards.
Regardless of whether a card is associated with a credit card or debit card account, EMV-enabled cards include a square metallic chip on the front. The chip acts as an embedded microprocessor that contains sensitive data. When the time comes to input his/her card for processing, the cardholder simply inserts the card into the EMV terminal and leaves it there while the transaction processes.
The magnetic stripes on the back of traditional credit and debit cards store data that does not change. Whoever accesses that data on the magnetic stripe gains the sensitive card and cardholder information that is necessary to make purchases. If someone copies a magnetic stripe, they can easily replicate that data over and over again because it doesn't change. That makes traditional cards prime targets for counterfeiters. Unlike a magnetic strip on the back of a card, the chip is more difficult to replicate in order to create a fraudulent version of a card (and much more expensive for thieves to counterfeit than magnetic stripes).
When using cards with EMV chip technology, unique data is assigned during the transaction. 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 thieves do intercept a transaction, they won’t be able to replicate the data associated with it for use in future fraudulent transactions (something they can do easily with magnetic strip cards). Typical card duplication is prevented because the stolen transaction number created in that instance wouldn't be usable again and the card would be denied.
There are more than 40 million active EMV terminals globally, but plans for EMV implementation in the United States didn’t begin until 2011. In 2012, American Express, Discover, MasterCard and Visa all announced plans to switch to an EMV-based payment infrastructure. The transition to EMV for financial institutions and card issuers began in 2013. The first round of EMV cards are equipped with both chip and magnetic-stripe functions so consumer spending is not disrupted and merchants have time to adjust.
Now that some of the deadlines imposed on merchants to implement EMV-enabled point-of-sale terminals have passed, liability for fraudulent transactions has shifted. Before the October 1, 2015 EMV deadline, the bulk of the liability following a data breach or similar payment fraud fell to financial institutions.
Now, the party offering the lowest level of security in a transaction is liable for the fees, fines and possible lawsuits that result from a payment security breach.
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.
Until recently, automated fuel dispensers had until 2017 to make the shift to EMV. However, a December 2016 Visa and Mastercard agreement now gives pay-at-the-pump gas terminals until October 2020 to become EMV-compliant.
So for now, gas stations do not fall under the existing EMV fraud liability shift rules.
Retailers using mobile payment devices such as Square also have to upgrade their equipment to read EMV chip cards. Square has designed EMV-compatible card readers for Android and iOS devices that can read contactless mobile payments and process dipped chip cards.
As of December 31, 2016, more than 408 million Visa chip cards have been issued in the United States. Approximately 189 million of those chip cards are Visa credit cards and about 219 million are chip-equipped debit cards. As of October 1, 2016 about 68 percent of Mastercard-branded credit and debit cards with chips have been issued.
While many large retailers, such as Walmart, Target and Costco, have upgraded their POS terminals and have activated them for chip card acceptance, most U.S. retail locations are not EMV-ready.
Visa says 39 percent of U.S. stores (approximately 1.81 million merchant locations) now accept chip cards, as of December 2016. Also, as of October 2016, Mastercard has tallied 2.3 million chip-active merchant locations on its network, representing 38 percent of all U.S. merchants. Industry experts expect the merchant migration to slowly continue over the next few years, especially as the remaining liability shift dates get closer.
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. 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.
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. 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.