EMV is a global standard for credit and debit cards developed by Europay, MasterCard and Visa (which is where the term EMV originated) and based on embedded chip card technology. The card’s chip communicates with card-accepting devices such as point-of-sale terminals and ATMs through direct contact with the reader by way of a contact plate. The chip contains all the information needed to use the card for payment and is protected by various security features. It can facilitate robust authentication, which can significantly reduce fraud rates at the point of sale or ATM. EMV standards also apply for contactless transactions, where a dual-interface card includes both a contact interface (chip) and a contactless interface (typically an embedded antenna).
Global EMV Adoption
Many countries in Europe, Latin America, and Asia, as well as Canada and Mexico, are in various stages of EMV chip migration. The impact on fraud reduction efforts has been significant. While these countries have realized a reduction in domestic card-present fraud, their experiences have also shown a migration to other types of fraud, namely card-not-present fraud and cross-border counterfeit fraud, particularly ATM fraud. Criminals are known to exploit the weakest link, moving from locations where stronger authentication is present to those where it is not and from financial institutions and merchants with more sophisticated fraud detection and prevention tools to those with less. With more than 1 billion EMV cards issued in the rest of the world and projections for continued growth in EMV card issuance outside of the United States, criminals are more likely to move magnetic stripe card counterfeiting activities stateside. This could trigger an increase in cross-border counterfeit fraud, according to the non-profit Smart Card Alliance. And because many EMV card issuers still authorize magnetic stripe transactions (for cards that possess both the EMV chip and a magnetic stripe), card skimming can still take place in EMV-compliant countries.
United States Adoption
Announcements made by Visa and MasterCard are helping to build momentum for widespread EMV adoption in the United States. An Aite Group survey of risk management executives in 2009 and again in 2011 demonstrates a shift in EMV outlook in the United States. In Aite’s 2009 survey, 36% of respondents said adoption would never occur. Two years later, only 17% of respondents said it would never occur. While the general consensus was that the transition would happen, more than half of respondents said it will be five years or more before the United States payments industry begins its migration to EMV.
Widespread United States adoption won’t be easy and it will require an investment from financial institutions, card issuers, and merchants. In other countries, it has taken regulation to ensure adoption. Additional hurdles for the United States include the need to:
- Reissue debit and credit cards with embedded chip technology.
- Replace POS devices so they are able to read EMV cards, with merchants bearing the cost to upgrade.
- Ensure ATMs are able to read and process EMV cards, with financial institutions bearing the cost of the upgrade or replacement.
Several financial institutions have chosen to begin adopting EMV chip cards and several major retailers have also been deploying EMV-compliant POS terminals, including Wal-Mart, Home Depot and Best Buy. Those who have begun transitioning to EMV chip cards have done so primarily to support customers traveling to EMV-compliant countries.
One publicized example of a credit union that has begun the transition to EMV technology is United Nations Federal Credit Union ($3.6B, Long Island City, NY), which migrated its Visa-branded credit cards to the EMV chip standard in October 2010 for elite cardholders. Purchase volume within the elite portfolio increased by 20% since the launch of EMV-compliant cards, and UNFCU plans to expand the EMV offering to more members in 2012.
The Security Benefits Of EMV
According to the Smart Card Alliance, the benefits of migrating to EMV include:
- Improving the security of the United States payments infrastructure and eliminating the United States as a destination for criminals and global magnetic-stripe fraud activity.
- Increasing the satisfaction of cardholders, especially when traveling internationally. In 2008, United States payment card issuers missed out on nearly $4 billion in charge volume, including $78.7 million in interchange fees, because of problems cardholders had with their cards while traveling abroad.
- Increasing the satisfaction of international customers who will be using EMV cards at United States merchants and ATMs.
- Maintaining interoperability with the rest of the world as it migrates to EMV.
- Leveraging commercially available EMV-compatible products and services for a low-risk, proven approach to fraud reduction.
- Positioning the industry for other forms of payment, notably NFC-based mobile, contactless payments.
A Foundation For The Future
Strategies for card security continue to evolve. Magnetic-fingerprint and single-use cards have fallen out of favor, while EMV-compliant cards have gained favor, according the 2011 Aite Group study. NFC technology has also increased appeal for use in contactless credit cards and continues to grow as it is incorporated into mobile phones, enabling them to be used as a payment method. EMV will serve as a foundation for mobile NFC payments.
Card-related fraud losses remain a problem that is expected to grow as criminals become more likely to move counterfeit magnetic stripe card activities to the United States. EMV-based chip cards can be an important component of a comprehensive security program to combat fraud. EMV-compliant technology is a global standard for the payment industry that improves the security of card authentication against counterfeiting, cardholder verification against lost/stolen cards, and transaction authorization against interception and replay.
For more than 150 years, Diebold has been a security leader. We protect credit unions from fraud, logical threats and physical attacks. For more information about Diebold ATM security solutions and EMV technology, visit www.dieboldatmsecurity.com or call 800.806.6827.