Smarter Credit Cards Coming Soon: An EMV Primer

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EMV, which stands for Europay, MasterCard, Visa, is the global standard for chip cards used in credit and debit cards that first appeared in the 1990s and was backward compatible with the Geldkarte standard.  The specifications are controlled and managed by EMVCo.  The official introduction of EMV technology into the marketplace was 2005.

According to Randy Vanderhoof, executive director of the Smart Card Alliance, an industry organization, there were over 1.5 billion EMV chip-based credit and debit cards in use worldwide at the end of 2011,.  There were also 21.9 million EMV terminals.  As of Q1 2008, according to figures provided by EMVCo, there were only 730 million EMV-compatible cards in circulation so the number of EMV cards has basically doubled in the past four years.

The overwhelming majority of EMV cardholders are outside the U.S.  Indeed, the United Nations Federal Credit Union, the first U.S.-based bank to issue an EMV card, did so in 2010.

JPMorgan’s Palladium Card

Perhaps more significantly, JPMorgan Chase became the first major bank in the U.S. to issue an EMV card.  In April of last year, the bank announced that it would offer its JPMorgan Palladium card with a chip-and-signature technology.  The Palladium card is the bank’s flagship card and the bank’s explanation of its use of EMV technology was that Palladium card holders were frequent travelers abroad.  Since then, JPMorgan Chase has issued several other cards with EMV chips.

Even as EMV starts to be deployed in the U.S. people’s habits with respect to payment technology continue to evolve (witness the rising popularity of alternative payment systems such as Pay with Square and Google Wallet), but that will be the subject of another article.

One thing is clear: cash is becoming passé.


Today, credit card issuers including Citibank, JPMorgan Chase, Silicon Valley Bank, U.S. Bank, and Wells Fargo, are starting to roll out EMV cards.   Among charge cards, Diners Club USA, which is owned by the Bank of Montreal and currently not accepting new applications for personal accounts, also offers EMV cards.  In June, American Express, which issues EMV cards in other markets including Canada, Germany, and the United Kingdom, announced it will begin to issue such cards in the U.S. by the end of the year.  As this issue was going to press, Bank of America announced it will begin to offer chip-and-signature cards as well.

American Express card ca. 1963

The roll-out, however, is slow.  EMV cards essentially come in two varieties, chip-and-signature and chip-and-PIN. Most issuers in the U.S. have thus far used chip-and-signature cards, which means that a signature, not a PIN, is used for authentication.  Diners Club, however, uses a chip-and-PIN card, as does the Andrews Federal Credit Union, and plans are in place for several PSCU credit unions to offer a prepaid Visa chip-and-PIN card as well.

In Europe, chip-and-PIN is the standard and has been shown to significantly reduce fraud when the credit card is present in a transaction.  In fact, in many European countries, the cardholder, not the bank, is responsible for all transactions on the card unless the cardholder can submit positive proof that the transaction was made fraudulently.  In the U.S., banks typically assume responsibility for credit card fraud and cardholders are typically absolved of that responsibility by law.

One point to consider when viewing the prevalence of chip-and-PIN technology in Europe is that it was designed to allow for the off-line processing of transactions.  Almost 100% of all credit card transactions in the U.S. are processed online (the figure is around 93% in Europe today) so there is no need to support offline transactions in the U.S.  (Off-line processing refers to a transaction where the credit card information is not immediately authorized and processed by the merchant’s bank.) Online (or immediate) authorization has many advantages including allowing the issuer to run transactions through proprietary fraud detection systems.

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