The EMV 101 series provides go-to-resources for those who are interested in learning more about EMV payment technology and EMV migration in the US. This is the second entry to this series that outlines common EMV implementation myths. As we progress throughout the series, we will go more in-depth on the EMV technologies and applications that are important for a successful program roll out.
EMV chip payment cards have attracted attention and risen to the forefront of the headlines in the U.S. in light of recent data breaches along with the rapidly approaching October 2015 liability shift date. As breaches continue to increase and consumers feel the impact of card fraud, they look to their financial institutions to provide greater security and protection – and issuing EMV chip cards is one step in the right direction. Although many U.S. financial card issuers are planning on moving to EMV chip card issuance – there are some common misconceptions that have caused other financial institutions to hold-off on implementing EMV cards into their portfolios. Below, we break down the top 5 myths surrounding EMV implementation for banks, bureaus and other financial card issuers.
Myth #1: EMV chip cards do not significantly reduce fraudulent activity.
Truth #1: As other countries around the world have migrated to EMV chip cards, the frequency of card-present fraud has decreased significantly.
- UK: Since the implementation of chip and PIN EMV smart cards in 2004, card-present fraud has declined by 69%
- Australia: Card-present fraud rates have decreased by roughly 15% since 2008-2010 as EMV smart cards have been issued.
- Canada: Fraud losses from counterfeit and lost or stolen credit cards is down 30% since the national roll-out of chip-and-PIN in 2008.
EMV chip cards help reduce card-present fraud because they require stronger authentication at the time of transactions. There are two ways a chip card can be verified for authenticity; online or offline. Online card authentication transactions carry dynamic data that is sent to the card issuer’s authorization system which checks the authenticity of the card. Offline card authentication uses chip-stored, risk assessment logic to determine if a card is authentic and typically requires a PIN.
EMV chip cards not only have stronger authentication methods, they also often times have stronger verification to ensure the card user is the legitimate cardholder. Card verification can be performed by requiring the card user to enter a PIN number that is unique to their card or alternatively requiring the card user to provide a signature.
Myth #2: EMV smart card programs are too expensive and have little operational efficiency.
Truth #2: It is true that smart chip card stock is more expensive on a cost-per-card basis however; issuing EMV chip cards can reduce overall operational costs several ways.
- Fraud Administration. With decreased card-present fraud rates, there is ultimately a reduction in the amount of reissued cards needed to replace fraudulent cards which saves financial card issuers money in regards to purchasing card stock and the costs associated with mailing new cards. The lowered levels of reissued cards reduces the amount of time and money that is spent on the internal management of fraud, including communicating with cardholders via emails and letters to notify them that their account has been compromised and they will be receiving a new card. In addition, once a cardholder has experienced fraud, their existing card is deactivated and they must wait for their new card to arrive in the mail. There is typically a 5-7 day waiting period and during that time the cardholder is not making any purchases which results in lost revenue for the financial institution.
- Exception Handling. Financial card issuers may also realize exception handling cost savings with EMV chip cards because decreased fraud rates means lower volumes of retrieval requests, chargebacks, disputes and compliance cases. If there is a dispute, it is investigated and resolved much faster because there is a transaction certificate – used by the retailer or acquirer to approve the transaction – which gets generated for each transaction. This certificate acts as an electronic paper trail that logs the transaction making it easier to investigate in the case of suspected fraud.
- Reduced Reliance on Telecom Infrastructure. With EMV chip-and-PIN cards, transactions can be completed securely offline due to the risk assessment logic programmed into the chip.
Myth #3: EMV smart cards will not increase card usage.
Truth #3: According to a study conducted by Aite Group, 63% of consumers use their card less after experiencing fraud and of those cardholders who received replacement cards as a result of a data breach in the past year, 43% used the new card less than the original. Since EMV chip cards reduce the chance of fraud, consumers will have more confidence that their cards are secure and will use them more frequently.
Additionally, with the roll-out of EMV smart cards, new ways of communicating with POS terminals are being introduced. For example, EMV-enabled POS terminals have the ability to use Near Field Communication (NFC) technologies to complete transactions. This means that if your EMV smart card includes a contactless antenna, you may simply wave your card over the POS terminal instead of swiping. NFC technologies are gaining traction in the mobile payments space which will accelerate the adoption of EMV terminals in retail stores paving the way for the future of payments. Most EMV-enabled POS terminals have the capability to use NFC. In fact, it’s more difficult to purchase an EMV terminal without NFC capabilities.
Myth #4: We have time to wait to implement EMV into our business model.
Truth #4: Implementation can take 3-6 months or more depending on the payments infrastructure of the financial institution. The longer you wait, the longer the lead-time will be due to last-minute orders. You will also need to consider the time it will take to get new chip based card stock. With the increase in demand, there are long lead times to get card designs ported over to the new stock with preference given to larger orders. Be proactive versus reactive.
Myth #5: Global interoperability is not a huge concern for our card members.
Truth #5: International tourist arrivals exceeded 1B globally for the first time in 2012. Today, international travelers expect speed and convenience and will likely migrate to a financial provider that offers EMV smart cards that are globally interoperable. In meeting the needs of these customers, you will need to consider how you implement the EMV standard. Just having a readable chip on the card is not sufficient in many global markets. The information on the chip must be accompanied with a PIN if your customers are going to use their card in an unattended kiosk (e.g., purchasing public transportation tickets), tolls, fuel stations, etc. By implementing chip and PIN, your customers will be given the ability to increase their dependence on your payment card when traveling abroad.