WHAT IS EMV?

By Bill Draper | 5 Apr 2015

You may be hearing about the upcoming credit card requirement to support EMV. There is a lot of confusion around what exactly EMV is and why you need to care. Let’s get a lot of that cleared up.

FreeImages.com/ jenny w.

Since the early days of credit card use, cards have come with a magnetic strip that encodes data on it in much the same way as the old cassette tapes held music. Card data is copied to the magnetic stripe by the credit card company before it is sent to the cardholder and when used the card is swiped through a simple piece of hardware, often at the point of sale, that reads the data off the strip for processing, such as for payment in a restaurant.

This has served customers and the industry well for many years. However, criminals eventually found that they could easily create devices that could “clone” credit cards, in essence doing the same thing that the credit card companies do when they manufacture cards. If the credit card companies can write data to the magnetic strip, so can the criminals. This created an underground market for cloned cards and the data from real, existing cards to be used in the cloning of fake cards. This form of fraud became widespread, particularly in Europe.

In order to stem the rise of fraud, a group of card companies in Europe created a new technology standard called EMV. EMV stands for Europay Mastercard Visa and it replaces the older technology using a magnetic strip for recording card data with a tiny electronic circuit chip that contains the card data along with a few additional security measures making these cards much more immune to the cloning techniques used for copying magnetic stripe data.

The EMV standard spread throughout Europe and other geographies making a significant impact on fraud where used. So what did the criminals do? They turned their attention to the U.S. market where magnetic strips are still used on credit cards! So the credit card companies, eager to slow their losses from fraud, are bringing the EMV chip-based cards to the U.S.

The credit card companies have mandated that merchants must have solutions in place to accept chip-based cards by October of 2015 (yes, that is this year!) or liability for fraud will shift to merchants. That is probably you.

So with the October deadline looming on the horizon, what do you need to know?

Credit Card Usage Scenarios

There are two general scenarios for card usage where the cardholder can be asked to present credentials for using the card: a signature can be required (referred to as chip and signature); or a pin number can be required (known as chip-and-pin).

Chip and signature requires the card with the chip embedded in it to be inserted into a special card reader that is capable of reading the data off the chip on the card. Then, depending on the merchant’s signature requirements, a signature may be required. By example, some merchants do not require a signature for amounts below $25.00.

Chip-and-pin scenarios require the cardholder’s card to be inserted into a special card reader then the cardholder must key in a pin to authorize the transaction. Chip-and-pin is not likely to be used frequently in restaurants in the U.S. for the foreseeable future. Most cards with chips being issued in the U.S. have been set up to continue allow for signature verification as opposed to requiring a pin. For ATM use and possibly other automated kiosk applications, pin entry will often be required.

How Restaurants Will Likely Cope After October 2015

FreeImages.com/ Steve Zazeski

For a counter-service restaurant in the U.S. we can expect the customer experience to be the same as it is today in most ways. There will be differences however. We expect most all counter service restaurants that support EMV to add a new piece of equipment to their POS system. These devices will be similar to what we are already used to seeing at the check-out counter in grocery stores and some retail stores. The customer will be asked to insert their chip-enabled card into a reader on this device and leave the card inserted until instructed to remove it. Chip-enabled cards must remain inserted until the transaction is complete. This very well may confuse customers until they get used to the process and it may actually slow down payment in the line.

For table-service restaurants in the U.S. we can expect payment details to change significantly compared to what customers and staff are used to today. Today, staff members usually will take the card from the customer, go to the nearest POS or payment terminal, swipe the card through a reader and return the card along with credit card slip to the table. Customers may then leave an optional tip, sign the slip and leave.

For restaurants supporting EMV, when a customer is ready to pay, the staff can no longer take the card from the customer and bring it back later. This almost certainly means that table service restaurants choosing to support EMV will need to invest in mobile payment devices that can be brought to the table for the customer to insert their own card and finalize the transaction at the table.

Some time ago there was a lot of talk about chip-and-pin being required in the U.S. In fact, many articles written on the topic somewhat incorrectly refer to all these scenarios as chip-and-pin, potentially confusing the topic. Quite simply, for the large majority of credit card transactions in the U.S., chip and signature is going to win for the foreseeable future. Maybe one day, if hackers learn to make cloned chipped cards, credit card companies may phase in more use of a pin for credentials but that would only be speculation today.

How Do I Support EMV?

FreeImages.com/ Nimalan Tharmalingam

So what do you need in order to support EMV? Should you even support EMV? First, check with your POS provider to get their plans for support. Expect most solutions to come in the form of a new device that you connect to your POS via USB, Ethernet or wirelessly. These devices will look like a pin-pad with a card reader on them. Once connected to a POS that supports EMV, chipped cards can be accepted as payment using the new reader device. Chipped cards do still come with a magnetic stripe on them and a traditional magnetic stripe reader can still be used with a chipped card.

But if the merchant does not have EMV support in place and continues to support chipped cards using a non-EMV reader (stripe reader), the merchant will be liable for fraudulent use. There is a lot of debate today about whether most restaurants should even support EMV. The arguments for supporting EMV are pretty simple: use of a fraudulent card shifts liability for charges to the merchant not supporting EMV!

One thing we will likely recommend is that when selecting an EMV payment device, seriously consider choosing one that also supports NFC, a feature that makes it possible to accept tap-to-pay solutions such as NFC-enabled cards, Apple Pay and other forms of mobile payment that use NFC.

There are those who argue that the risk is not actually very high. Most cloned cards are presumably used to purchase goods that have resale value and items from a restaurant generally do not. Gift cards would be one example of an exception of course. Also, criminals using fraudulent cards generally want items of high value to make it worth the risk. Again, food from a restaurant would unlikely fit this either.

Ultimately each restaurant must make their own choice. It may also be the case that the rollout of EMV simply shifts the focus of criminals from one purchasing pattern to something else. We will post more on the subject as EMV continues to unfold in the U.S.

So that’s EMV for restaurants in the U.S. If you wish to discuss further write to me: bill@gustofb.com

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