Moving From Magnetic Stripe To EMV: The Impact On Acquiring Payment Processors

With new contactless and mobile payment options emerging, why is there still a need for EMV solutions?

It’s a question with far-reaching implications for all parties involved in the payments ecosystem, and one that will become increasingly important in the near future. By 2015, counterfeit and fraudulent transaction liability will shift to acquirers if a merchant processes a transaction with a counterfeit or fraudulent chip card and has not implemented a chip-accepting terminal. This means merchants must be equipped with the right tools to make the switch to EMV.

How has EMV’s relevance shifted now that there are many ways to secure the data transmitted during a payment, and what role will EMV play in a cardless world?

Allen Friedman, Associate Business Development Director at TSYS Acquiring Solutions, explained to PYMNTS.com why EMV is relevant today, its future importance, and what new changes will mean for acquirers, processors and merchants.

1. How does this transition process impact acquirers and their merchants? How does it affect payments processors?

Acquiring processors, referring to acquirers that process their own transactions directly to Visa, MasterCard, American Express, and Discover, as well as processors, such as TSYS Acquiring Solutions, that provide that service on behalf of their acquiring clients, were required by those payment networks to certify their host’s capability of processing EMV transactions. There is not a requirement for merchants to implement EMV capable POS devices at this time.

There is, however, a scheduled shift in liability for counterfeit and fraudulent transactions in October, 2015 (2017 for fuel retailers).  At that time, the liability for those transactions will shift from the issuer to the acquirer if the merchant is not using a fully capable EMV POS device for both contact and contactless transactions.  Since today those costs are covered by the issuers, it’s not easy to determine how much that liability could cost a merchant.  Merchants that wish to avoid that liability will need to have implemented a certified EMV POS solution by that date.

2. Many countries have already adopted EMV standards, but is EMV’s relevance shifting now that there are many ways to secure data transmitted during a payment?

EMV is not really about securing data, it is about authentication.  Data on the transaction, generated by the chip, authenticates the card to the issuer, ensuring that it is not a counterfeit or “cloned” card. EMV transactions may also include a PIN, even for credit cards, which authenticates the cardholder to help prevent fraud through lost or stolen cards. EMV is still the best existing technology in use today to authenticate cards and cardholders.

Methods of securing data during transmission, such as encryption, help protect the sensitive credit card information, but do nothing to address authentication.

3. The countries that face EMV adoption now are living in a very different world than EMV’s initial adopters. What’s the significance of EMV in a world that’s moving to a cardless environment?

One of the major reasons for the initial adoption of EMV in Europe was to provide a way of authenticating cards and cardholders in offline environments when communications were unreliable or it was prohibitively expensive to authorize every transaction online. EMV continues to provide that authentication today in the early adopter countries, even with more reliable and less expensive communications making online authorizations more pervasive. Whether online or offline, the incidence of card-present fraud from counterfeiting and stolen cards has been drastically reduced. That fraud has moved to the U.S., which is a driving factor in our adoption.

I haven’t seen evidence of a move to a cardless environment for retail payments. Many of the mobile payment numbers released in surveys and predictions reflect all payments, including online shopping and bill payments, and sometimes the numbers include mobile payment acceptance, which usually means a plastic card is being accepted at a mobile payment device. I have no doubt that retail mobile payments will grow, but some of the mobile payment solutions actually use EMV technology to authenticate the card information. In any case, I believe it will be many years, if ever, before cards disappear.

4. Finally, talk about how all of this ties into what EMV is going to look like in the future, and how TSYS plans on being a part of that environment.

Some mobile payment solutions, i.e. Mobile Wallets, use EMV technology today for contactless retail transactions. There is discussion about processing EMV in a cloud environment, but there is some concern about the current speed of those transactions and the various factors that could impact the information flowing between an EMV card and the cloud-based chip reader. Those concerns could be resolved in the future, making EMV implementation faster and less expensive. There are potential methods of using EMV technology to authenticate cards and cardholders in eCommerce transactions. Some of these methods are beginning to be used in Europe. This is of great interest in the U.S., because we know that when we begin to address retail card present fraud, the illicit activity will move online as it has in other parts of the world.

TSYS is an active participant in organizations such as the Smart Card Alliance and the EMV Migration Forum, and we will continue to provide input in those forums as the future of EMV is discussed, and share the information provided in those forums with our customers.

To learn more about EMV from a payment processor’s perspective, view TSYS’ presentation here.

Allen Friedman

Associate Business Development Director at TSYS Acquiring Solutions

As Associate Product Director at TSYS Acquiring Solutions in Tempe, Ariz., Allen Friedman is responsible for the core authorization and capture platforms, payment forms (including the card brands and EMV), and connectivity solutions.

Allen joined Vital Processing Services (now TSYS Acquiring Solutions) in 1999 and has held a variety of management positions in technical support, implementation, and product.  Allen uses his technical expertise and ability to relate that to customers and business functions to create product solutions.