EMV payment cards: The future is here

EMV cards are coming to the United States. Card issuers are migrating to chip technology, and many large merchants are going to be ready with chip-enabled point-of-sale devices by the deadline (generally October 2015) imposed by the card associations (Visa, MasterCard, Discover and American Express). Before you know it, cards with embedded microprocessor chips will be as prevalent in the U.S. as they are in Europe.

The point is to reduce fraud. Chip-enabled cards are more secure because the data that controls authentication is dynamic – it changes with each transaction. By contrast, the data on a magnetic strip is static – it never changes. Once a thief has that data, which can easily be copied (skimmed), the card can be counterfeited.

The use of chip-enabled cards will not be mandatory. Newly issued cards will still have magnetic strips as well. It is up to merchants whether they want to invest in new point-of-sale devices.  

A big benefit to issuing banks is the liability shift that will occur. Presently, for the most part, card issuers take the loss when there is a chargeback due to a fraudulent transaction. But when October comes, with some exceptions entitled to a later deadline (like gas stations), merchants who have not converted their point-of-sale devices will be liable for fraudulent transactions if the card used by the customer was chip-enabled. This is because the card association will hold responsible the merchant’s acquirer/processor, which will pass the liability on to the merchant.

Keep in mind, this won’t affect card-not-present (CNP) transactions, like online sales. In other countries, the advent of chip-enabled cards shifted fraudulent activity to CNP transactions, and that can be expected to happen in the U.S. as well. It will become more important than ever for CNP merchants to use robust authentication methods for online and other CNP transactions.

For people who travel overseas, this is old hat. The rest of us, particularly merchants and card issuers, will have no choice but to get used to this new technology.

-Richard S. Marcus is an attorney in the Financial Institutions Practice Group at Godfrey & Kahn S.C. in Milwaukee.

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