EMV: A Success In Fraud Reduction

By Phillip Harrison, Regional Vice President of Sales, Banc Card of America

For years, credit and debit card holders were accustomed to paying for goods and services by swiping their card at the point of sale using the magnetic strip. Since the introduction of EMV standards, the swipe of the magnetic strip has been gradually replaced with cards that utilize computer chip technology. Today, chip cards are accepted at nearly 4 million merchants, whereas that number was less than 400,000 in 2015, according to PYMTS.

Why the change? In an effort to reduce credit card fraud after high profile security breaches at major retailers, the United States began the transition to EMV standards around 2011, following the precedent in place for decades in nearly every other major market, including Europe and Canada. The chip card payments are widely viewed as more secure than swiped transactions. As a result, the popularity of the embedded EMV chip card has risen across America, while counterfeit fraud resulting from stolen data has declined by 87 percent, according to VISA. 

How does it work? During a transaction, the chip and the terminal work together to create a unique encrypted code—combining data on the chip and data on the terminal, but using instructions only found on the chip. This code will only be used one time and is useless outside of the singular transaction. In contrast, magnetic strips contain static information which is easier and more beneficial for criminals to copy. The EMV encryption creates a new series of challenges for fraudsters to steal card holder data.

What’s the impact to businesses? Obviously, merchant card security is important and a decline in fraud is a win across the board. With that said, any change can cause initial concern to business owners. Two most frequently expressed concerns from merchants initially were the cost of implementation and increased transaction time. The good news is businesses found that EMV terminals have similar price points as traditional “swipe” terminals. Businesses with high transaction counts were worried the slower process of running an EMV card would create longer lines and more frustration from their patrons and employees. At first, transactions were slower and did take seconds longer to communicate to the processor. However, as is common in our technology driven world, the terminals have become more advanced and the transaction time has decreased.

Additionally, several years ago there were just a few options to take a payment outside of a brick and mortar store.

One option might be to gather card holder information and call an employee to run the sale. This would create a keyed-in transaction, which increases the processing fee and risks. Today, EMV mobile card readers have been introduced. This provides the opportunity for a business to take a secure card present transaction on the go. 

What’s the timeline? While the United States began the transition to chip cards and EMV technology in 2011, the fraud liability shift that began on October 1, 2015, sped things up significantly. This shift means that liability for fraud now lies with the party that is least-EMV compliant, which could mean the merchant if a chip system is not installed and fraud occurs with use of the magnetic strip. By law, merchants are not required to update their Point of Sale (POS) devices; however, by not doing so, they accept the potential fraud liability. Merchants who take in-person chip card transactions are provided more protection by the payment processor and issuing bank. October 1, 2020, will mark the final chapter of the EMV liability shift, when all card present transactions will be held to the new standards.

Bankers, it is important to partner with a merchant service company that can help educate your stakeholders on the important steps to help reduce fraud at their businesses. 

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