Chip Cards are Coming

Recent high-profile data breaches at major retailers like Target and Home Depot have increased awareness of cybersecurity and the need to protect credit and debit card information.

A major shift in the payments industry should help keep consumers’ data secure. Within the next year you should begin seeing EMV cards—they have a secure microprocessor chip embedded in the plastic—in stores and your own wallet. EMV stands for EuroPay, Mastercard and Visa, the partners who developed the technology standard that has been used successfully outside of the United States. Now all credit card processors, including American Express and Discover, are on board and have been embedding chips in their cards.

The chip in EMV cards generates dynamic data to authenticate transactions and protect the cardholder. Unlike magnetic stripe cards, which store the card number and expiration date on the back, EMV cards (also known as smart cards) uniquely encrypt the transaction data each time the card is used. This reduces the opportunity for data to be stolen or compromised at the point of sale or at a later date after the sale is complete.

EMV will not eliminate fraud nor data breaches, but it will certainly enhance transaction security when both the card and terminal are compliant with EMV standards. The shift to EMV cards has implications for both consumers and merchants.

Consumers

Some major card issuers have begun sending their clients new EMV cards, with many others to follow suit in 2015. Pinnacle plans to begin issuing EMV cards to our debit and credit card holders in mid 2015. At the same time, retailers will be upgrading their point-of-sale equipment to accept EMV cards.

Instead of swiping, you will insert your EMV card into a terminal and keep it there for the duration of the transaction. The new cards you receive will have both the chip and the magnetic stripe, so they should be accepted anywhere you shop while the transition takes place.

Merchants

If you’re a merchant, I hope you’ve heard about OCTOBER 1, 2015. Yes, all caps, underlined in bold. This is a critical date for anyone who issues or accepts credit/debit cards. On this date, financial liability associated with fraud losses will be assigned to the party not prepared to process a fully compliant EMV transaction. In very basic terms, merchants will begin assuming the liability for fraud losses if their terminals are not EMV compatible.

This includes having the right equipment programmed with the necessary software to process EMV transactions. While large retailers have received the message, payment experts predict a large number of smaller merchants will not be prepared due to required upgrade costs or lack of information.

Watch this 2-minute video for more information about how the cards and terminals work.

The payments space will transform itself over the next few years. It’s important that merchants of all sizes understand the innovation taking place and make appropriate plans to leverage new technologies, increase collections speed and minimize payment risk. Contact your financial advisor or merchant card specialist for more information on EMV or any other payment-related topic.

Gail Outland can be reached at 615-620-1249 or gail.outland@pnfp.com.