EEMMVV && SSmmaarrttccaarrddss:: WWhheenn wwiillll

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WWhhaatt iiss EEMMVV??

EMV is a technology developed in 1994 that uses smart cards to secure credit and debit card transactions. EMV was originally developed by Europay, MasterCard and Visa. EMV Circuit Card Specifications are maintained and enhanced by EMVco, owned by American Express, JCB, MasterCard and Visa.

The technology transmits to a merchant's credit card machine via a small microchip in the customer's credit card instead of a magnetic strip that is currently found on the back of a typical credit card.

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A smart card is a credit card that has a microchip with memory and micro processing functionality. Smart cards are the same size and shape of traditional credit cards. They typically feature a magnetic strip in addition to a microchip allowing it to be accepted by merchants with point of sales systems capable of reading a smart card or regular credit card.

The microchip in the smart card utilizes a one-time-use password that protects each transaction. The ability of the microchip in the smart card to generate this one-time-use password is a unique characteristic in EMV's security, and it's where smart cards derive their name.

Visa and MasterCard have implemented measures to help bring EMV to the United States. For financial institutions, requiring them to issue cardholders new credit cards and update networks to process EMV data. For merchants, they will need to purchase new EMV-compliant terminals.

The costs associated with the transition to EMV are expected to be ultimately passed on to the merchant and consumer. The benefits are increased security and reduced fraud. EMV is currently the payment standard in every major market except for the

United States, making the switch to EMV in the U.S. long anticipated. Many speculate that the U.S. has been reluctant to convert to the lower risk credit cards as this would facilitate an argument for lower interchange rates which card issuers (those that benefit from interchange rates) have argued need to be higher to compensate for potential losses due to fraud.

EMV decreases credit and debit card fraud on card-present transactions from its advanced technology. Unlike the traditional magnetic strips that transmit static information on regular credit cards, a microchip transmits a unique cryptogram to every transaction. Since each transaction transmits a different cryptogram, criminals are unable to replicate the code to perpetrate fraud.

The cryptogram of a smart card prevents "card skimming," which occurs when the information from a magnetic strip is lifted without the cardholder’s knowledge. Once obtained, this information can be used to "card transplant". This is when devices copy a Cardholder's data to a blank card. The card is then used to commit fraud.

A globally adopted EMV standard allows cardholders to travel freely and make purchases anywhere using the technology.

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EMV is a card-present technology, meaning the card must be physically within a few inches in what's called a near field communication (NFC). EMV cards are not swiped like magnetic cards. Instead, they are processed using near field communication (NFC) or physical contact. A cardholder will waive their smart card in front of a special reader on a merchant's POS system. Sometimes the cardholder will need to insert the EMV card into a slot in the merchant's credit card terminal. If a card can be processed both ways, they are called dual interface cards.

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Technology Innovation Program (TIP) Visa's TIP went into effect October 1, 2012 permitting U.S. merchants eliminate PCI validations once 75% or greater of their transactions originate from a device capable of transacting both NFC or physical EMV transactions. This does not mean the merchant wouldn't be responsible for paying their PCI compliance fees to their credit card processor.

On October 15, 2015, credit card processors will be responsible for losses due to fraud that occur as a result to a cardholder being forced to use a magnetic strip credit card instead of a smart card as a result of a business not having a smartcard capable device. Losses will be passed from the processor to the business. Gas stations are

given until 2017 to upgrade their equipment due to the higher costs associated with upgrading the equipment.

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The time to begin preparing for the upcoming EMV transition is now. EMV-capable credit card processing machines and POS terminals are available. If you anticipate purchasing any new equipment make sure you talk to your processor about purchasing a device that is compatible with EMV. We don't recommend rushing out to purchase a new machine unless you need a new one, although we do recommend you add this cost into your 2014 budget.

One other thought... We don't think it's ever prudent to lease equipment. The amount a processor will charge a merchant for a terminal over the term of a lease will pay for the equipment several times over. If at all possible, it is a much more cost effective option to purchase your equipment.