Everything you need to know about EMV credit cards

Written by
Dan Rafter
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Your bank or credit union offers “smart” credit cards embedded with an EMV chip. Banks tout these microchip-equipped cards as being more secure, boasting the technology to reduce unauthorized purchases and counterfeit credit cards. And when you travel across the globe? Merchants might not accept your standard magnetic-strip-powered U.S. credit card. But they will gladly accept credit cards that come with EMV chips.

Should you apply for an EMV credit card? And if you do, will you be able to use these high-tech smart cards at merchants across the United States? Will online retailers accept these cards?

The answer to the second and third questions is a certain “yes.” The answer to the first? File that as a strong “probably.”

Banking officials, after all, are certainly sold on the benefits of EMV cards.

“These cards open up international opportunities for our members,” says Leanne Phelps, senior vice president of card services with Raleigh, North Carolina-based State Employees’ Credit Union, which began offering EMV cards in 2011. “And eventually, when the magnetic strips are gone from the backs of U.S. cards, these EMV cards will help us reduce credit-card fraud. That’s the real advantage, and we’re looking forward to that day.”

EMV technology

The acronym “EMV” stands for Europay, MasterCard and Visa. But what’s important to know is that EMV cards contain microprocessors that provide security features that the standard magnetic-strip cards now used in the U.S. lack.

Security experts say it’s because of this technology that EMV cards are far more resistant to credit-card fraud.

This might explain why chip-embedded cards are already so popular in other countries. According to the Smart Card Alliance, 99.9 percent of point-of-sale terminals in Europe as of December 2013 could accept EMV cards, while 84.7 percent of those in Canada, Latin America and the Caribbean could do the same. At the same time, 86.3 percent of terminals in Africa and the Middle East were chip-enabled as of December of 2013.

This makes the U.S. one of the last countries to make the transition to EMV credit cards. And if you’re still unsure just what an EMV card is, don’t feel bad. You’re far from alone, at least in the U.S.

Randy Vanderhoof, director of the EMV Migration Forum in Princeton Junction, New Jersey, says financial institutions have not yet begun a full-scale marketing blitz to advertise these smart cards, but that it’s on the horizon.

The U.S. credit-card industry is in year two of a four-year planned transition to EMV cards, Vanderhoof says, and by the end of 2015, a majority of U.S. cards and merchants will have upgraded to EMV technology.

“The issuers of the cards and the merchants are being careful not to start their consumer education too quickly,” he says. “They don’t want to create further confusion until all the technology to accept these cards is in place.”

The biggest names in finance, though, are already behind EMV cards. Dina Demerell, director of card services at Chase credit cards, says that her bank is already expanding the number of chip-and-signature cards that it offers.

The reason? Demerell says that smart cards make sense for Chase’s customers.

“The cards simplify transactions for travelers while abroad,” Demerell says.

And that’s a key benefit. Merchants in other countries might not accept the magnetic-strip credit cards that most U.S. consumers still use.

Chase has already invested in point-of-sale technology that might help pave the way for the mainstreaming of EMV cards in the U.S. Paymentech, the financial institution’s global payment-processing business, already offers Future Proof, a point-of-sale terminal that allows merchants to accept both current and emerging forms of customer payments, including chip-powered credit cards, Demerell says.

Philip Andreae, vice president of field marketing in the Atlanta office of Oberthur Technologies, a global supplier of EMV chip card products and services, says the recent Home Depot and Target data breaches have accelerated efforts to bring EMV cards to the U.S.

Andreae predicts that the last credit card in the U.S. will be converted to an EMV card in 2017, and that by the end of 2015 more than 50 percent of all credit cards in the country will boast EMV chips.

A security boost?

Vanderhoof says the other key benefit of EMV cards is how secure they are. These smart cards are particularly effective against counterfeit credit cards. That’s because merchants use EMV technology to verify the authenticity of credit cards during each transaction.

Andreae says that EMV cards do this by creating a unique digital signature for each transaction. If someone is able to copy an EMV card, this person would not be able to create that dynamic signature. Therefore, the illegal transaction would be denied.

This tech also enables cardholder verification, which ensures that the consumer closing a transaction is actually the person to whom the card belongs.

Phelps says the members of her credit union have already seen the benefits of this enhanced security.

“We have seen a huge reduction in the number of cards that go out of the country and end up being compromised,” Phelps says. “We haven’t seen this kind of fraud in a couple of years, ever since we started issuing EMV cards. It used to be routine.”

Andreae says there are less tangible benefits to EMV cards, too, most notably the gradual elimination of physical features on credit cards.

“We are reducing the dependence on physical features that exist today on the strip card,” Andreae says. “The magnetic strip is a physical feature. The hologram and the embossed characters on the front of cards are physical features that we will no longer need when chip cards are the mainstream card.”

Expect more consumers to realize the benefits of these cards soon. The EMV Migration Forum reports that by the end of 2013 an estimated 17 million to 20 million chip cards had been issued to U.S. consumers. This number is expected to rise by 100 million or more cards by the end of 2014.

Vanderhoof says about 4 million U.S. point-of-sale systems have been replaced or upgraded as of the fall of 2014 to support the technology behind EMV cards. But, as Vanderhoof says, the U.S. has a market of about 12 million point-of-sale devices, leaving about 8 million left to undergo the upgrades they need to accept EMV technology.

U.S. consumers, though, shouldn’t feel that they have to wait until merchants have caught up to apply for EMV cards. U.S. cards with EMV chips still come with the traditional magnetic strip, too. This means that even those merchants not equipped to handle EMV technology can still use their existing magnetic-strip technology to process their customers’ chip-enabled credit cards.

Of course, it’s this strip technology that makes U.S. credit cards so susceptible to fraud, says Phelps. So the question is, how long until U.S. credit cards are powered only by EMV chips and the magnetic strips on the backs of our cards disappear for good?

Andreae says it will take at least 10 years before the magnetic strip disappears.

“The common belief is that as long as there are any terminals in the world that require the magnetic strip, there’ll still be a strip on the back of U.S. credit cards,” Andreae says.

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