EMV 101: What It Is and Why Every US Retailer Should Care

Boutique: Handing Credit Card to Saleswoman

Heads up, US merchants: EMV aka chip-and-pin—a more secure payment standard for credit and debit cards—is well on its way to the States, and it comes with some huge changes that every retailer should be aware of.

We’ve put together a quick guide that gives you all the need-to-know details about the EMV roll-out, including what it is, why you should care, and what you can do to get on board. (And trust us, you’ll want to adopt EMV technology.)


About EMV

EMV was developed Europay®, Mastercard® and Visa® (hence the name) as a way to combat fraud. It’s a technology that powers chip-and-pin cards, a breed of debit and credit cards that’s far more secure than the magnetic stripe (i.e. swipe-and-sign) cards that most US consumers have.

See, unlike a mag stripe card, which stores static information about the cardholder, an EMV card is embedded with a chip, which creates a unique code that changes for every transaction. This makes it less susceptible to fraud, because even if a hacker manages to counterfeit a chip card, the original transaction code is not useable again and the card would get declined.

Additionally, chip-and-pin cardholders verify their purchases using a PIN code instead of their signature. This adds another layer of security, because while signatures can be forged, PINs are much more difficult to crack.

Below is a quick visual to help you see the distinction between mag stripe and EMV cards. The cards on the left are swipe-and-sign cards, while the ones on the right are chip-and-pin cards. Notice the chip on the front of the EMV cards? That’s where the magic happens. (Click to enlarge.)


It’s important to note that EMV has been reducing card fraud for several years now and it’s already been implemented in Europe, Canada, Asia, the Middle East, Australia, and New Zealand. The United States is actually the last major market to embrace EMV, and this could be one of the reasons why fraud has been so rampant. According to the Wall Street Journal, “half the world’s credit card fraud happens in America, despite the country being home to about a quarter of all credit card transactions.” With the adoption of EMV, this number will likely decrease and will help get card fraud under control.


The big liability shift

The US is in the process of transitioning to the EMV standard, so pretty soon, the mag stripe cards that consumers are carrying around in their wallets will be replaced by chip-and-pin cards.

The deadline for this changeover is October 1, 2015; on this date, credit card companies will issue a Fraud Liability Shift (FLS) policy that will transfer liability for certain fraudulent transactions to the party that is least EMV compliant.

This means that when fraud takes place, the party that will be liable for the charges will be the one who has the lesser technology. So if a fraudulent transaction occurs with a chip-and-pin card and the retailer hasn’t upgraded to an EMV-compliant system, the merchant would be liable for the charges. However, if the store has already adopted EMV but the bank hasn’t issued a chip card to the customer, then the bank would be held liable.

Think of it this way: If someone walks into your store and uses a counterfeited chip-and-pin card to purchase a pair of $100 boots, and you used a non-EMV terminal to process that transaction, then you will be held liable for that $100.

To prevent this from happening, you need to upgrade to a payment terminal that’s equipped to process chip-and-pin cards. This will require a bit of an investment, but given that it makes card processing more secure (and it protects you from fraud costs), it’s well worth it.


EMV Initiatives

Everyone, from credit card issuers to the President, wants to get the whole country on board with EMV, so there isn’t a shortage of resources and initiatives that can help and motivate you to make the shift.

American Express, for instance, will soon be launching Small Merchant EMV Assistance Program to incentivize small biz owners to upgrade their point-of-sale terminals. Beginning February 2015, eligible merchants who have upgraded their terminals can request a $100 reimbursement from American Express by visiting www.americanexpress.com/fightfraud. Amex has committed to providing up to $10 million in reimbursements to merchants who submit a request by April 30, 2015.

Visa, on the other hand will invest over $20 million in educational initiatives for consumers and merchants. The company will also be sending experts to 20 cities as part of a national public service campaign.


What you need to do

Educating yourself is the first step to getting on board with EMV. Talk to your bank and merchant provider about EMV compliance and consult your payment hardware and software vendors to learn more about the equipment upgrades you’ll need to implement to become EMV ready.

Keep an eye out for EMV initiatives (such as the ones above) and take advantage of any offers or resources that can make your transition easier.

It could also help to see the technology in action. A number of major retailers, including Home Depot, Target, Walmart, and Walgreens, have already upgraded their equipment and will start accepting chip-enabled cards by early 2015, so swing by these stores at the beginning of next year to see how EMV terminals work.

Finally, Vend will be putting out educational content around EMV to help you make the change. So keep checking our blog, follow us on social media, or subscribe to our newsletter to get updates about this important topic.

Like any transition, the shift to EMV will take some time and come with its own set of challenges. Fortunately, all the parties involved in the process—including banks, retailers, and solution providers—are coming together to support this change, so we’re confident that we’ll be able to make this work, and that pretty soon, retailing in the US will be much more secure for consumers and merchants alike.

Do you have any questions or concerns about EMV? Let us know in the comments.

About Francesca Nicasio

Francesca Nicasio is Vend's Retail Expert and Content Strategist. She writes about trends, tips, and other cool things that enable retailers to increase sales, serve customers better, and be more awesome overall. She's also the author of Retail Survival of the Fittest, a free eBook to help retailers future-proof their stores. Connect with her on LinkedIn, Twitter, or Google+.