EMV on its way to the US
By David Dorf-Oracle on Aug 01, 2012
At a past job I recall slaving away in Mastercard's facility in Purchase, NY testing my implementation of a stored value system called Mondex when the project manager walked in and told me to stop working so hard. I was completely confused as there were deadlines to meet, but a few days later Mastercard announced is was dumping Mondex in favor of something called EMV. That was over 15 years ago and EMV has yet to take hold in the US -- but its coming soon.
EMV is simply a standard for payments made using smartcards, which look like standard credit cards but have integrated circuits embedded. You can think of that chip as a tiny computer that can talk with the POS to perform encryption and authentication tasks to help prevent fraud. Chip-and-PIN is the UK's implementation of EMV.
Last year Visa announced its intention to transition the US from mag-stripe to EMV cards with a target of October 2015. Mastercard, Amercian Express, and Discover have also aligned to that target. This means that retailers need to upgrade their POS hardware to be able to accept contact (insert the chip card into a read) and contactless (wave the card near a reader) cards. Acquirers must have their software updated by April 2013.
To encourage retailers, the card brands are providing both a carrot and a stick. When 75% of a retailer's transactions are chip based, it no longer has to annually perform the PCI certification (yeah!). However, after the deadline acquirers and retailers will take on the liability of non-chip card transactions (boo!).
Contactless chip cards use a technology called NFC to communicate with the reader. In this case the chip can be embedded in a card or it can also be inside a smartphone. Therefore, by adopting EMV hardware retailers will also be ready to accept mobile payments like Google Wallet and Isis. Those payment systems include the added benefit of combining loyalty cards and digital coupons alongside payment data. We're still waiting to see if Apple includes NFC in its next generation iPhone, but their Passbook concept is a good sign.
Here's some free advice:
- Discuss EMV with your acquirer (and payment switch vendor) right away so you understand their roadmap.
- Plan to upgrade your existing payment terminals to meet EMV requirements ASAP. All the major payment terminal vendors have solutions. Consider if you need network-addressable terminals (ones connected to your LAN).
- Consider also participating with Google and Isis in their NFC programs. They have pilots running in several cities with aggressive expansion plans.
- Work with your POS vendor to understand any changes required to integrate the new payment terminals, but also to support value-added features like loyalty and digital coupons.
- Discuss lessons-learned with peers that have already gone through the EMV migration in Europe.
This transition away from mag-stripe cards will not only reduce fraud, but there's an opportunity to use the technology to improve shopping experiences. There will be pain along the way, but we'll all benefit from this move in the long-run.