How Do EMV Transactions Differ From Magnetic-Stripe Transactions?
Magnetic-stripe transactions have been the credit-card standard for generations. But a new standard has taken over major markets throughout the world, and the U.S. is now poised to make the transition throughout the upcoming year.
The major difference between magnetic-stripe and EMV-chip transactions is the increased security that EMV provides. But there are many other aspects that allow the new EMV standards to outshine the older magnetic-stripe process.
In short, EMV is a better method of transferring credit-card data than its magnetic-stripe predecessor. Let’s see how.
EMV offers consumers options when making transactions. There are two types of EMV transactions to consider: contact transactions and contactless transactions. Some cards may support one or both.
A contact transaction doesn’t differ much from a standard magnetic-stripe transaction. In fact, the only significant difference is that the card must remain in the terminal for the duration of the transaction. In the United States, contact transactions will likely account for the vast majority of your EMV-based transactions.
Contactless transactions allow a cardholder to simply tap his or her card against a terminal when prompted. As opposed to other wireless transactions that run on earlier implementations of RFID (radio frequency identification) technology, EMV transactions rely on NFC (near field communication), a newer subset that allows for greater security by insisting on a “handshake,” or active permission, from both the terminal and the initiating device (i.e. a card or even a smartphone).
What’s the Procedure for an EMV Transaction?
Here’s the sequence of a contact EMV transaction when inserting a card:
- From your terminal’s main menu, you or your employee will enter the type of transaction. More than likely, this will be “Credit.”
- Enter the amount of the transaction, and confirm it with the press of a button.
- Depending on the type of terminal you have, you may be promoted to pass the terminal itself to your customer. If so, pass it along. If not, you’ll ask for the card.
- Insert the card into the slot provided, usually at the bottom of the terminal. The card should be facing up and inserted chip-first.
- At this point, it’s important to remember to keep the card inserted until the transaction is complete.
- The terminal will recognize the card, and the transaction will continue.
- If the CVM is Chip-and-PIN, the customer will input his or her PIN before pressing enter.
- If the CVM is Chip-and-Signature, then there will be no prompt.
- If there is no CVM, there will also be no prompt.
- Following any required customer input, the transaction will be processed.
- Upon successful completion, a receipt will print, which may or may not require a signature, depending on your terminal.
- Your customer is now free to remove the card.
The procedure for contactless EMV transactions will be similar, but they will obviously not require insertion. Depending on rules set by the card issuer, a PIN or signature may be required to verify the transaction.
What Exactly Happens During an EMV Transaction?
To sum it up, the transaction itself is being checked against security certificates and remote pieces of account information all along the payment-processing chain.
It starts when the card is inserted into a terminal and the chip begins to “converse” with the terminal to create the transaction request. This request is based on a combination of pieces of information found both in the terminal and on the customer’s card.
Once the request is formed, the terminal will make a decision on whether to send an online request to the card’s issuer for authorization, approve the transaction without sending it for additional issuer verification, or decline the transaction. This choice will be based on rules selected by the issuer and applied to the card itself.
If the request is sent to the issuer for online approval, the request will go out as a one-time-use “cryptogram,” which carries a unique digital signature based on information on the card. Throughout the inbound and outbound trips, both the merchant’s acquirer and the payment brand authenticate the EMV cryptogram. If the cryptogram is cleared as a valid request, it is then sent back to the terminal, and the transaction is completed.
The entire process takes only a few seconds to complete. Once it’s finished, the cardholder can remove the card from the terminal. Contactless transactions follow the same procedure.
Will People Still Be Able to Swipe Their Cards?
Yes. Initial EMV cards will still be equipped with magnetic stripes so that they can be used at locations that haven’t yet migrated to EMV.
What Is “Chip-and-PIN” and “Chip-and-Signature?”
Chip-and-PIN and Chip-and-Signature are two unique ways that a customer can confirm his or her purchase for an EMV transaction.
As you might have guessed, an EMV Chip-and-PIN transaction is verified with the use of a PIN. EMV transactions that require verification with a signature are known by the name “Chip-and-Signature.”
Which Type Will Be Used in the United States?
Initially, the vast majority of EMV transactions in the U.S. will be verified using Chip-and-Signature. This is because many issuers have decided not to offer EMV credit cards with PINs due to concerns about adjusting consumer behavior too abruptly.
Most PIN-verified transactions are likely to come from international customers, at least initially. So if you operate your business in a tourist-heavy area, be mindful that your equipment should accept Chip-and-PIN transactions.
Making the Transition
While the migration process and the new standard may seem a bit tedious and time-consuming, compared to magnetic-stripe transactions, EMV offers many benefits, including reduced fraud and increased privacy. These alone make the hassle worth your while.
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.