EMV / Chip Cards; Facts and Myths Business Owners Need to Know

By now, you are probably familiar with inserting chip cards as opposed to having them swiped on payment terminals. However, many people are unfamiliar with why this industry-wide change was made, how it affects businesses and common best practices around chip cards, or EMV, in general.

Since its introduction to the United States in 2011, EMV chip technology has dramatically:

  • Improved credit card security

  • Reduced in-store payment fraud

EMV technology has also allowed customers to use their cards abroad with greater convenience and confidence.

What are EMV credit cards, and how do they protect businesses and consumers from payment fraud?

The Basics: What Is EMV Chip Technology?

Short for “Europay, Mastercard, and Visa,” EMV credit cards come with embedded “smart chips” that offer much greater protection against fraud than their traditional magnetic stripe counterparts.

These embedded security chips are very difficult to clone. To successfully complete an in-store transaction at an EMV-enabled card terminal, the original version of the card (and chip) must be physically present.

Most of the world had already graduated to EMV payments by the time the technology arrived stateside in 2011. Yet, to speed the transition to this more secure standard, the U.S. introduced new liability rules in October 2015. Merchants and card-issuing banks that didn’t make the switch would be responsible for any losses resulting from fraudulent activity. They would also be subject to punitive fines.

As of 2018, more than 842 million chip cards have been issued to U.S. consumers.

How Does EMV Technology Work?

EMV chips can store far more information than magnetic stripes. This allows EMV credit cards to hold encrypted data, which helps protect against in-store payment fraud.

Better still, this encrypted data is dynamic, meaning the information can change over time.

Whenever an EMV card is used for an in-store payment:

  • The customer or business “dips” his or her plastic into a chip reader at the point-of-sale (POS) terminal

  • The EMV chip generates a unique transaction code that can never be used again (by anyone else)

The transaction code prevents EMV credit cards from being compromised – even if they fall into the wrong hands because a fake card would not be able to generate the proper code.

A Brief History of US EMV Card Adoption

Credit card chip technology is more secure than magstripe plastic. Still, making the shift to EMV payments proved to be very expensive for small businesses that couldn’t afford the necessary hardware upgrades to their POS systems.

In an effort to facilitate EMV adoption, fraud liability rules were altered in 2015 by U.S. credit card issuers:

  • Mastercard

  • Visa

  • Discover

  • American Express

After October 1, 2015, liability for in-store counterfeit fraud shifted to whichever side of a transaction wasn’t EMV-ready – either the merchant or the card-issuing bank.

As such, non-compliance with EMV chip cards became more expensive than upgrading one’s payment environment. Adoption of the more secure standard began to go mainstream in the U.S.

Since these liability rules went into effect, in-store payment fraud has dropped significantly. U.S. merchants that made the switch saw counterfeit fraud plummet 76 percent between September 2015 and December 2018.

Credit card chip technology has proven so effective at combatting in-store fraud that, starting in April 2018, Visa, MasterCard, American Express, and Discover decided they will no longer require signatures to verify card-based purchases.

Retailers can still optionally require signatures to verify a cardholder’s identity, but this is at their discretion. Dropping the signature requirement will ultimately help streamline the checkout process without compromising credit card security.

What Do EMV Credit Cards Mean for Businesses?

More than 3.5 million merchants now accept EMV chip cards. That number will only continue to increase as more businesses:

  • Grow to appreciate how chip cards can help reduce fraud

  • Face penalties by not complying with the new liability rules

Merchants that don’t make the switch, however, will become easier targets for criminals. Because thieves tend to go after the lowest-hanging fruit, they will increasingly focus their attention on those businesses that continue to only accept magstripes.

Will People Still Be Able to Swipe Their Cards?

Yes. Initial EMV cards will still be equipped with magnetic stripes so that they can be used at locations that haven’t yet migrated to EMV. However, the Card Associations plan to eliminate Magstripes in the future which means businesses must solely rely on chip and contactless payments


Three EMV Myths

Myth 1: EMV implementation is mandatory.

Fact: EMV Is NOT mandatory. It’s the businesses choice to implement. In fact, the chip card will still have a magnetic stripe for use at traditional swipe and sign terminals. This means that if your terminal does not accept chip and signature cards, you can still accept payments.

However, some argue for EMV adoption since fraud risk is higher on magnetic stripe cards and terminals as they will be the lowest level of technology.

Myth 2: “Chip and pin” and “chip and signature” are the same.

Fact: These two are NOT the same. The U.S. has adopted “chip and signature” EMV, not “chip and pin.” The latter does make the card more secure, and has been responsible for decreasing fraud in other parts of the world, but it’s not yet standard in the U.S. In the meantime, pairing a chip with a signature is still more secure than the magnetic stripe alone.

Myth 3: EMV compliance secures cardholder data.

Fact: EMV does NOT protect or encrypt cardholder data. EMV is an authorization technology, and doesn’t hide cardholder data by itself. The unique transaction number allows the merchant’s EMV terminal to challenge the EMV card to prove that it’s authentic. This makes it harder to copy an EMV card than a magnetic card. But once the card is authenticated, the cardholder data is transmitted to the POS similarly to how it is today.

What can I do to help?

Detect fraud. Train your staff to keep an eye out for fraudulent cards. Cards without chips may still be run with their magnetic strips, but these are now more likely than before to be fraudulent. Ask for IDs, and if a card is declined, ask for a new form of payment.

Plan ahead. Now that EMV technology has made it to the U.S., it’s not going away. In fact, it’s likely that we’ll start to move toward a pay and PIN option, as opposed to the current pay and sign procedure. If you’re making a big investment in your restaurant’s technology for EMV implementation, be sure that the technology you select can grow with you into the future.

Why Every Business Needs EMV Credit Card Processing

The need for EMV credit card processing all comes down to a few key points:

  • Greater security and enhanced fraud protection

  • Reduced risk of fraudulent losses, penalties, and litigation

  • Peace of mind for patrons that their data will stay secure

Although making the switch to EMV chip cards isn’t free, the above benefits more than pay for themselves.

Paul Hadfieldpayments, pointsofsale, EMV, chip cards, credit card processing, Restaurants