EMV: The Upside Of Smart Card Adoption, Will Small Businesses Be Ready?

EMV and smart card adoption are becoming more important than ever, especially for smaller companies. The term “EMV” (which stands for EuroPay, MasterCard, and Visa, the three companies that devised the standard) refers to a set of fraud reduction technology standards that ensure payment applications using chip-based cards are compatible around the world.

smart card

For almost two decades, interest in a chip-based payment standard such as EMV has barely reached a simmer in the United States. Recently however, some of the card brands have increased awareness resulting in collective interest across the United States in the smart chip standard. In addition to financial institutions, merchants of all sizes, including small business owners, should understand the current state of EMV in the U.S. and the impact of this standard.

While there are many “flavors” of chip-based payment standards, to date the majority of EMV implementations globally have focused on chip + PIN enablement. Whatever the format, smart chips are the basis of the technical standard behind more than 1.24 billion payment cards and 15.4 million point-of-sale (POS) terminals, with almost all of those cards and acceptance devices residing outside the United States.

Small Business Implications of Smart Card Adoption in the U.S.

Payment industry experts generally agree that a chip-based standard will come to the U.S., but the predictions of when and in what form vary dramatically. While pundits say the U.S. is far from ready, there is a distinct possibility that the change may come sooner.

Smaller merchants, as well as larger businesses, have many decisions to make. Once a sufficient number of financial institutions begin issuing smart cards, merchants need to decide whether to process the cards using EMV technology or to accept financial liability and responsibility for fraud losses. Either way, small business owners that choose to wait for widespread implementation will be at a disadvantage when the standard is accepted.

Savvy businesses are starting their education process now and are beginning to formulate plans for adoption. Merchants that take the necessary steps to select the tools to future-proof their investment will be in a better position to evolve as their business needs and the industry changes.

Smart Card Acceptance 101

Understanding the changes will require some learning. It is important to understand what the new POS devices can and can’t do, and there are many device options on the market. Many manufacturers and payments players are adding new functionality to EMV-enabled equipment, making their equipment more innovation-agnostic.

Merchants will need to coordinate with their acquirer or processor to accommodate the transaction messaging for EMV-based payments. Because more data is sent to the acquirer from an EMV-compliant transaction than from a magstripe-based transaction, both message types will need to be supported.

Business owners and operators and their acquirers in coordination with smart card acceptance, can determine whether to require a PIN, a signature or neither for cardholder authentication in a credit or debit transaction. The Durbin Amendment gave merchants the authority to make this decision, and for the first time it is now being phased-in for magstripe transactions.

Overall, as EMV is deployed, there will be procedural changes at the POS. For example, most EMV-enabled POS equipment will include contactless technology, allowing merchants to accept contactless and mobile payments, which provides a higher level of convenience for customers and speeds up check-out time. Some of the new smart chip-enabled POS devices will help drive loyalty and repeat business by pushing coupons and special offers to mobile phones, allowing consumers to redeem offers through the device. Additionally, while smart cards won’t solve every security problem, they will go a long way toward boosting customer confidence at the POS.

Next Steps for Small Business Implementation of EMV

While no one really knows when all of this will come together in the U.S., one thing is certain – some form of chip-based payment standardization is coming. Clearly the need to reduce fraud and increase security exists, and now some of the industry’s largest players are starting to put incentives in place to encourage merchant, acquirer and financial institution migration.

The small business is a key player in this very serious game. Business owners and operators should conduct a full assessment to understand the impact of EMV and participate in industry discussions, not only to get educated, but to have the opportunity to influence how the payments ecosystem moves forward with smart card implementations.

Third-party POS software providers understand the business strategy of becoming EMV-compliant. By engaging the POS provider experts and assessing what a smart chip enablement plan would look like to upgrade consumer-facing POS devices, small businesses can plan ahead while staying in synch with payments provider readiness for smart card processing. Finally, consider ways to reduce fraud and data theft risks as part of a comprehensive payments security plan.

While there is no mandate for EMV adoption, both Visa and MasterCard have indicated that a liability shift will apply to merchants who have not upgraded their POS terminals to process EMV card transactions and fraud occurs. Thus, when evaluating their overall payments transaction security needs, savvy businesses are increasingly realizing the value of taking a multi-layered approach to data security and fraud prevention—incorporating a combination of recommended end-to-end encryption and tokenization technologies—with the ability to better manage vulnerabilities throughout the payment processing sequence.

Now is the time to get educated to fully understand the issues and the choices ahead.


Smart Card Photo via Shutterstock

7 Comments ▼

Brian Goudie


Brian Goudie Brian Goudie is a Senior Vice President at First Data, a global technology and payments processing company that serves more than six million merchant locations worldwide. Goudie has more than 16 years of experience in the payments industry and heads up First Data’s Small Business Center.

7 Reactions

  1. Would this type of technology work with mobile card readers like Square, Intuit GoPayment and the new Paypal device?

    • Martin Lindeskog

      iZettle is working with this type of technology.

      Brian Goudie: Great to see that the North American market is catching up with the new and safer technology.

    • Brian Goudie

      EMV adoption will most likely begin with larger retailers who have multiple locations, particularly with high international acceptance, high overall volume, or high counterfeit fraud concentrations and want to decrease their liability for fraudulent transactions. The cost of EMV-capable equipment would probably suggest adoption for mobile card readers is not going to be part of the near-term transition. However, it would be beneficial for these players to come with an EMV solution by 2015 when liability shifts to merchants.

  2. neeraj malhotra

    What if OTP is generated or any dynamic passcode for pos

  3. Are telephone sales “out-of-the-loop”, we assume?

    • Brian Goudie

      Yes, EMV is a fraud reduction technology at the point of sale and the associated liability shift does not include lost/stolen card fraud, card-not-present transactions (eCommerce) or contactless cards without a contact chip.

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