Is the Time Right for EMV and Chip Card Technology?

Jeff Zimmerman


News about EMV and chip card technology has been all over the payments industry publications this year, and it seems that smart cards and EMV-capable point-of-sale (POS) equipment and terminals are starting to become more common as well. In fact, I recently received a new American Express credit card with ”chip and signature” technology, and you're undoubtedly starting to see EMV-capable terminals at more and more merchants. Does this mean that now is the time for EMV and chip card technology?

Before I go on, I would first like to explain what I mean when I say EMV and chip card technology. EMV stands for Europay International, MasterCard, and Visa and is a set of standards for how chip cards interact with POS terminals and devices. EMV cards are often referred to as smart cards or chip cards and are essentially credit or debit cards with an embedded microchip.

This chip generates a unique code called a cryptogram with each and every transaction. This code is then used to verify that the purchase is being made with a legitimate card and is what makes it virtually impossible for criminals to counterfeit EMV cards.

For quite some time people have been asking when chip cards will become popular in the United States. After all, we had been hearing about EMV for years, but the rollout was extremely slow because of the high cost to issue chip cards and merchants were slow to install new POS devices with chip card readers.

October 2015 was long seen as a key milestone because of the liability shift associated with that date. You see, after that date, merchants without EMV capability in their POS system will hold the liability for transactions with counterfeit cards. However, as you well know, it takes time - and a lot of money - to replace magnetic stripe cards with EMV cards. That's why many financial institutions use expiration cycles to issue new cards, and this simply takes time.

Sure last year's Target breach helped expedite the roll out of EMV in the United States, but expert forecasts vary widely on when EMV will become commonplace in the U.S. I've seen estimates from experts in the field of credit card processing that estimate that in the U.S. anywhere from 270 million to 650 million smart cards will be issued by the end of 2015. This means that anywhere from 23%-54% of cards in the U.S. will have EMV capability. Either way, we will definitely see a significant jump in the number of EMV cards in the U.S. in 2015.

So what does this mean for your financial institution's merchant services program? If you have a lot of small ”mom and pop” customers, there's a good chance that they won't have many customers who want to use EMV cards at their businesses, but this will increase over time. If your merchants are thinking about upgrading their POS equipment, they should make sure that their new devices have a chip card reader, which is a slot where consumers can insert their card.

The good news for merchants is that by upgrading their terminal they will also be able to support Apple Pay, providing they choose a terminal that has a contactless card reader. Being able to accept two new forms of payment will go a long way for the merchant in terms of increasing customer satisfaction by offering added convenience and security to their customers.

What impact has EMV had on your financial institution's merchant services program? Have your merchants been asking about EMV and chip card technology? If so, we can help you educate them on the ins and outs of EMV and chip card technology.