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EMV Chip Cards: Tutorial 101

Are EMV Chip Cards Really More Secure

Short for Europay, MasterCard and Visa, EMV cards are a special type of credit card with embedded security chips designed to prevent in-store retail fraud.

But how do EMVs cards work? And what makes them more secure?

To answer these questions, it helps to understand the primary differences between these chip-enabled cards and older forms of plastic.

Traditional credit cards come with magnetic stripes ("magstripes") that encode the primary account number and expiration date. This information remains static and is easy to clone. By contrast, the embedded security chips on newer cards supports dynamic authentication, like the use of either PIN or signature, when verified by a point-of-sale device.

Consequently, EMV cards are very difficult to duplicate and abuse. To initiate a transaction, the card must be physically present at the EMV terminal, and to complete a purchase, customers must either:

Countries that have already accepted EMVs as their official credit card standard have seen in-store retail fraud plummet:

Because of this enhanced security, EMV cards are already the official payment option around the globe. Card issuers and merchants who don't comply with the "chip" standard often face stiff penalties whenever fraudulent activity occurs.

EMV Chip Cards in the United States

The U.S. is one of the largest retail markets in the world, responsible for nearly 25 percent of all card-based transactions. Though they’re also responsible for 50 percent of all credit card fraud. 

This is why stateside regulators introduced new liability rules that went into effect in October 2015. These rules shift responsibility on whoever is least EMV-compliant whenever an in-store transaction results in fraudulent activity:

  • If a customer uses a magstripe card on a merchant's EMV reader, the card-issuing bank must cover any fraudulent losses.
  • If a customer uses an EMV card on a legacy reader, the merchant is responsible.

Although these rules were introduced in late 2015, stateside EMV card adoption isn’t close to 100 percent yet. The main delay is cost. In order to comply with the new rules, merchants must update their payment hardware to accept chip-enabled cards. Nationwide, the price tag for such upgrades exceeds $2.5 billion.  In addition, merchants must also train their employees how to correctly process EMV chip cards, including:

  • How the card interfaces with the reader
  • How to distinguish between chip-and-PIN and chip-and-signature cards
  • How to handle chargebacks, refunds and exchanges

If you haven't made the switch to EMV chip cards yet, you may be wondering whether it's worth the time, money and effort.

The Main Advantages of Accepting EMVs

There are plenty of reasons to make the switch. First and foremost, you won’t be on the hook for as many fraudulent losses. This alone should be motivation enough. 

However, here are some additional benefits of switching:

  • Continued reliance on older credit card machines makes you an easy target for criminals. Even when you’re in the right, you can expect to lose time and money fighting each individual instance of fraud.
  • Some card brands may waive your annual PCI-DSS audit if 75% of transactions are processed through EMV-enabled readers.
  • Data breaches and identity theft are major concerns in the retail world.  Plus, many customers only do business with merchants who can guarantee a secure shopping environment.

Switching to the EMV standard does require an upfront investment. However, it's an investment that pays for itself when you consider all of the headaches, financial losses and missed sales you can avoid by adopting this more secure payment option.

To learn how we can make your own EMV transition as affordable and as painless as possible, contact our payment security team today for a free consultation.

Topics: EMV

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