Chip-based smartcards must all adhere to certain technological specifications known as the EMV standard. This standard was developed in 1994 through a joint effort by Europay, MasterCard, and Visa (hence EMV), who sought to establish guidelines that would ensure global payment interoperability, fraud security, and the relevance of worldwide card networks for years to come.
The need for such a standard stemmed mainly from a combination of the weaknesses and high costs of existing card technology as well as innovation within the industry. You see, the magnetic stripe on the back of most credit cards issued by US banks has served as the basis for credit card fraud prevention since the 1970’s. Account information is stored within the magnetic stripe and is cross-referenced via phone lines against a database of known fraudulent accounts upon being swiped at a merchant location. While this was obviously revolutionary at its inception, given that fraud checks were previously done by hand, fraudsters were eventually able to find weaknesses in the magnetic stripe (e.g. it can be copied rather easily). Telecommunication costs were also prohibitively expensive outside of the United States, so payments industry leaders had incentive to explore alternative card technologies, which they obviously found in the form of micro computer chips.
But each country couldn’t independently create its own type of chip-based smartcard or consumers would not be able to spend internationally. What’s more, the continued use of magnetic stripe cards in certain countries – most notably the United States – necessitated a system that would accommodate different types of identity verification.
How it Works
Without getting too technical, the EMV standard dictates how payment cards and payment terminals interact in order to facilitate purchases and withdrawals in a fast and secure manner. In theory, it enables signature, non-signature, and Personal Identification Number (PIN) payment verification. The particular verification method that is actually used depends on each country’s infrastructure as well as where you intend to make a purchase.
“The system is set up to negotiate the lowest common denominator between the card and the payment terminal,” says Jack Jania, senior vice president and general manager of secure transactions for Gemalto, Inc., a Netherlands-based smartcard manufacturer. In other words, if a payment terminal and a card are both equipped to accept PIN transactions – the most secure level of fraud prevention – you’ll need to enter a PIN for the transaction to go through. On the other end of the spectrum, if a consumer only has a magnetic stripe card, the terminal will recognize this and ask for a signature to verify the purchase.
The idea is to accommodate as many payment methods as possible while gradually progressing toward global interoperability based on the most secure possible technology and verification methods. This obviously entails phasing out the magnetic stripe, which has already occurred at many unmanned payment terminals in Europe, such as ticket kiosks at train stations and vending machines. Such kiosks are known as offline payment terminals and generally verify transactions by matching a PIN to a computer chip embedded in a card, rather than verifying customer information contained in a computer chip or a magnetic stripe by contacting the issuer at the time the purchase is made.
EMV has evolved over the years in terms of its exact technological specifications, the companies behind it and, of course, its prevalence worldwide. The first version of the EMV standard was published in 1996 and the most recent official revision was issued in 2008. During that time Europay became a part of MasterCard and both the Japan Credit Bureau (JCB) and American Express joined EMVco., the organization founded to maintain the EMV standard.
EMV technology has been heavily adopted in some way, shape, or form across the world, but its strongest presence is in Europe and Asia. The US has been slow to incorporate the standard domestically, but many issuers are beginning to offer special chip-and-signature credit cards that blend aspects of the magnetic stripe and EMV. By all accounts, this is a half measure that allows the US to bridge the gap between magnetic stripe credit cards and new payment technologies based on the EMV standard.