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EMV: Building tomorrow's payment infrastructure

Yes, EMV is complex. But with complexity comes opportunity for ATM deployers to future-proof their services.

September 12, 2013

Jeremy Gumbley, CTO CreditCall Corp.

Adoption of EMV technology is driving the evolution of the global payments industry.

The primary goal of the shift away from the magnetic stripe to EMV-chip enabled cards is to bring advanced security to ATM and point-of-sale terminals to reduce payment fraud. The transition will also pave the way for future innovation to extend the functionality of the ATM and create new revenue opportunities.

However, the industry must face a drastic overhaul of the existing payment infrastructure if it is to reach these goals. The enormity of the project has been felt most keenly in the U.S., which must coordinate the shift across a vast and sprawling marketplace.

According to a recent comScore report, there were one billion credit and debit cards in circulation in the U.S. in 2012 — approximately three cards for every person.

The U.S. ATM landscape is no less complex. However, it is clear from the pattern of fraud reduction in EMV-mature regions that ATMs are a central target for card fraud and therefore play a pivotal role in the successful rollout of EMV.

In July 2013, the European Central Bank revealed that card fraud losses fell 7.6 percent between 2007 and 2011 in the EMV-compliant SEPA zone.

This decline is underpinned by a 24 percent drop in fraud carried out at point-of-sale terminals, as well as a slowdown in the growth of ATM fraud, with just one fifth of card fraud losses in this region suffered at ATMs.

Card skimming, where information is copied from the magnetic strip of a card, is the dominant method of defrauding ATM users. This technique is much harder with chip cards, which use encryption to generate unique codes each time a transaction is made, though the threat will not be truly eliminated until EMV cards no longer bear the mag stripe.

The U.S. migration is now underway; however as the last major global economy to tackle the transition, this region has attracted opportunistic criminals from EMV-compliant markets. The FICO U.S. fraud map shows a rise in ATM fraud across 20 states in 2011.

The technology shift required to make EMV a reality affects the entire payments ecosystem, across merchants, integrators, VARs and processors. The technological challenges stretch across both hardware and software — banks and other card issuers must reissue every payment card, while terminals across the country must be modified or replaced.

On the front line of card interaction, ATM deployers will be looking to their device manufacturers and integrators to provide EMV-compliant technology ahead of the ATM liability shift in October 2016.

ATM manufacturers, Integrators and VARs will need to cover off the extensive EMV requirements to add the necessary EMV Level 1 and Level 2 Kernels (the set of functions that provide all the necessary processing logic and data to perform an EMV transaction) into their machines.

They must then navigate the testing and certification process, a two-stage progression including testing at the card reader itself as well as end-to-end testing, which covers the integration of the messages from the terminal to the payment network and through to the card issuer.

Needless to say, this process is costly and time-consuming, with resources in short supply amongst manufacturers and within the wider payments sector.

The U.S. market faces some significant challenges in implementing EMV, though the industry need not start from scratch with regard to the technical transition nor the knowledge required to navigate the shift.

Organizations can capitalize on the expertise and developments in other regions, working with third parties to easily integrate EMV technology with their own solutions, streamlining their route to market and bypassing the need for expensive in-house technology development.

EMV migration is primarily viewed as a compliance issue — a regulatory burden to be tackled. The technology refresh will undoubtedly make the ATM environment more complex.

However, with complexity comes sophistication and the opportunity for ATM deployers to future-proof their services and look ahead to a longer term roadmap.

Chip-enabled cards have much broader functionality than their magnetic stripe predecessors, bringing the potential for services such as mobile and as NFC to authenticate cash withdrawal.

Out-of-date legacy systems that may once have restricted development of new services are now in the queue for replacement or upgrade — a timely renewal for financial institutions that are increasingly turning to this channel as a route to improved client service and revenue generation.

With cash as the ultimate exchangeable, and virtually untraceable, commodity, the ATM is a major vector for card fraud.  The migration to chip cards will not only reduce fraud losses at these machines, but has the potential to truly revolutionize the future of this channel.

Read more about EMV.

photo: auburn alumni association