EMV Essentials: The Major Players, Must-Know Terms and More
If you’re a business owner, you’re probably wondering about the EMV migration and what it means for your business.
You might have already come across phrases like “Chip-and-PIN” or even dreaded the October 2015 deadline. You might even have asked yourself why it’s taken so long for the United States to catch up to a technology that had its roots laid down by the global payments industry over 15 years ago.
If any of these questions have crossed your mind, we’re here to give you answers. But before we get into the details, let’s cover the basics.
The Players, the Terms and How They Work Together
This list is by no means exhaustive, but it will give you a solid idea of who performs what function and how each affects your business.
EMVCo is the standards body managing the EMV migration. Before affecting merchants here in the U.S., EMVCo supervised the implementation of EMV technology across the globe. They’ve also helped U.S.-based companies with their own EMV migrations over the past few years.
Founded in 1994 by Europay, MasterCard and Visa, the namesakes of the acronym “EMV,” the EMVCo group now includes American Express, Discover, Japan Credit Bureau and China UnionPay.
Sometimes called a “scheme,” a brand is the type of company that’s perhaps most familiar to cardholders. In the United States, the prominent brands are American Express, the Discover Network, MasterCard and Visa.
Brands write and maintain the rules for processing transactions within their brand network of banks, merchants and other parties, and work to increase their brand’s acceptance by merchants and consumers.
Through EMVCo, these brands wrote the requirements that will guide the American EMV migration for the entire credit-card payment ecosystem, including the impending merchant liability shift deadline on October 1, 2015.
An issuer is any business or body that issues credit cards that are backed by a brand. Typical issuers include banks and credit unions, which issue branded credit cards to consumers. The issuer is the organization that consumers deal with when processing certain brands of credit cards.
Non-financial institutions, such as larger department stores, can also issue their own credit cards that may or may not feature a brand.
Many issuers have already started to replace expiring cards with newer cards featuring EMV chips.
Also known as “merchant acquirers,” these businesses provide transaction accounts that allow retailers and other merchants to accept credit cards. Just as issuers provide consumers with credit cards, acquirers enable merchants to accept them.
More importantly, however, acquirers are the ones that accept risk on credit card payments collected by merchants. Acquirers also hold the funds that are used to resolve credit-card transactions. They’re also responsible for complying with rules and regulations set by the brands, governments and security standards bodies.
Acquirers had their own deadline to comply with the EMV migration, which passed on April 1, 2013.
Payment processors, true to their name, process payments between merchants, acquirers, issuers and cardholders.
In spite of not providing the funds to complete a purchase, processors are responsible for moving those funds in order to authorize and settle purchases. They are also responsible for managing disputes between the various parties and work closely with technology vendors to offer payment-acceptance solutions for merchants.
Because of their relationship with technology vendors, processors also share responsibility for certifying software and hardware to accept EMV transactions according to a brand’s requirements. In cases where a merchant’s point-of-sale (POS) solution is customized beyond its original configuration, the cost of certification may be shared between the merchant, the merchant’s processor and acquirer.
Companies that provide the technology needed to accept credit-card payments. These include manufacturers of credit-card terminals, POS systems, plug-in card readers and other related equipment.
Independent Software Vendor (ISV)
An ISV is a company that works in conjunction with merchants, payment processors and some acquirers to create software programs that are used to collect payments. These programs interface with networks set up by payment processors and acquirers.
Some larger merchants might work directly with ISVs to create customized POS solutions.
How Do These Companies Interact With Each Other and Create a Payment Chain?
To understand how these companies interact, it’s easiest to imagine it through a hypothetical transaction.
The customer is on one side of the transaction, and the merchant is on the other side. The issuer, acquirer, payment processor and brands occupy the space in between.
A transaction starts when the cardholder places a card in the merchant’s terminal. From there, a signal is sent from the terminal to the cardholder’s issuing institution (usually a bank). This signal travels through the merchant’s acquirer system and onto the issuer for ultimate approval. If the signal is recognized as valid, the issuer then confirms that the cardholder can cover the transaction, and an authorization is sent back to the terminal.
The movement of said signal is governed by rules written by the brands. Those rules are followed by acquirers and payment processors.
Ready for the Migration?
For some businesses, the migration to EMV will be a relatively long process, but with an understanding of the major players and how their roles impact your business, migration to EMV will be that much simpler.
Fred Badlissi is an in-house writer and editor for Intuit. His previous experience includes years as a business journalist, covering topics like China’s ascent as a world power, the business of public and private water treatment, and the financial implications of the 2009 American Recovery and Reinvestment Act. He also edited and co-wrote The Freelancer’s Playbook.