EMV Chip Cards and Contactless Payments – How They Work in Credit Cards

EMV cards require a PIN for transactions, and a contactless card is a “tap-to-pay card” that uses RFID or NFC technology.

EMV technology is now integrated with NFC (Near Field Communication) to facilitate secure and convenient contactless payments using mobile devices, smartwatches and contactless cards.

Understanding EMV Chip Cards and Contactless Payments

EMV chip cards are also known as smart cards that have changed how payment transactions are processed. The term EMV stands for Europay, Mastercard, and Visa, the three companies that established this standard for secure payment cards. The EMV chip cards are embedded with a small computer chip that stores and encrypts cardholder information.

EMV chip cards enhance security by generating a one-time-use code during each transaction which is transmitted to the card reader. This process is often referred to as tokenization, and it is also employed in contactless payment systems such as Apple Pay and Google Pay. EMV chip cards significantly lower the risk of counterfeit fraud that has been less since the adoption of EMV technology is increased.

In contrast to EMV chip cards, which accept payment through a one-time-use code, contactless payments are another way to make payments. This feature allows users to make payments by simply by tapping their card near a compatible card reader that uses the Near Field Communication (NFC) technology.

Contactless payments offer convenience and speed while maintaining the security benefits of EMV technology. Unlike standard EMV transactions, contactless payments are not just limited to the credit cards and debit cards, you can use your mobile phones as well to make payments. Contactless payments also provides a uniques code just like EMV chip cards to maintain the security of your data.

The growing acceptance of EMV chip and contactless payments has transformed consumer behavior and merchant practices worldwide. As of recent reports, approximately 75% of U.S. retailers are accepting the EMV payments that shows a significant increase in the adoption of this technology over the past few years.

EMV Contactless Cards

EMV technology stands for Europay, Mastercard, and Visa, which is integrated with Near Field Communication (NFC) to improve the security and convenience of contactless payments for the consumers. This integration of EMV technology and NFC allows users to make payments by simply using tap-to-pay method through their mobile devices, smartwatches, or contactless cards against a POS terminal. As consumers increasingly prefer contactless transactions for their speed and ease of use, merchants benefit from faster processing times and reduced cash handling.

How Do EMV Chip Cards and Contactless Payments Work?

EMV Chip Cards

EMV cards contain a microprocessor chip that stores cardholder information securely.

This chip serves several crucial functions:

• Data Storage: The EMV chips securely stores the data of the cardholder which includes account details and cryptographic keys that protect transactions.
• Transaction Security: Each transaction generates a unique one-time-use code that makes it impossible for fraudsters to replicate the card data even if they intercept it.

Process of EMV Chip Cards

1. Card Insertion: The cardholder inserts their EMV card into a compatible reader this is known as “dipping” method. The chip must face up and first enter the terminal.
2. Authentication: The terminal verifies that the card is genuine by checking the chip’s data.
3. Authorization Request: After the authentication process, the authorization request is sent to the cardholder in various methods such as Chip and PIN or Chip and Signature which enhances the data security by making sure that only authorized users can complete the transactions.

• Chip and PIN: The cardholder is required to enter a personal identification number (PIN) to complete the authorization request.
• Chip and Signature: It involves signing a receipt instead of entering a PIN.

4. Transaction Completion: The processor checks with the card issuer for approval or denial based on available funds or other criteria. The outcome is communicated back to the terminal to complete or reject the transaction.

Contactless Payments

Contactless payments are a modern method that utilizes Near Field Communication (NFC) and Radio Frequency Identification (RFID) technologies which allow users to complete purchases without the need for physical contact between their payment device and the point-of-sale (POS) terminal.

How Contactless Transactions Work

1. Initialization: The consumer brings their contactless card or mobile device close to the point-of-sale (POS) terminal to initiate a contactless transaction. This distance is typically within a few centimeters, often just an inch or two.
2. Communication: The point-of-sale POS terminal emits a radio frequency signal that is detected by the NFC chip implanted in the payment device. This communication occurs via Near Field Communication (NFC) or Radio Frequency Identification (RFID) technology which allows for data exchange without physical contact.
3. Data Transmission: Once the card or device is in range, it securely transmits payment information to the terminal. This process is rapid and usually takes only a few seconds.
4. Authorization: The terminal communicates with the customer’s bank account to ensure the details of the transaction and make sure there’s enough fund. The completion of the transaction is processed almost instantly once the proposed deal is investigated and passed.
5. Confirmation: The terminal provides feedback through visual indicators such as a green light or a beep after successful processing which confirms that the payment has been accepted.

Security Measures in Place

Both EMV chip cards and contactless payments incorporate several security features to protect consumers during transactions:

• Tokenization: This process replaces sensitive card information with randomly generated one-time-use codes that are unique to each transaction. This means that even if data is intercepted no one can reuse it for fraudulent activities.
• Dynamic Authentication: Each transaction generates a unique code that cannot be duplicated or used again which enhances security compared to static codes found on traditional cards.
• Cardholder Verification Limits (CVM): EMV supports four primary CVMs: offline PIN, online PIN, signature, and no CVM. The issuer determines the choice of CVM based on transaction risk and terminal capabilities. For contactless transactions, there is a maximum limit known as the CVM limit below which no PIN or signature is required until the limit is exceeded. Once the limit is exceeded, additional verification methods such as PIN entry or biometric authentication become necessary to ensure secure transaction processing.
• Biometric Security: Mobile devices often utilize biometric features like facial recognition or fingerprint scanning to authorize payments which adds an extra security before initiating a transaction.

Importance of EMV Chip Cards and Contactless Payment

Usage of EMV Chip Cards and Contactless Payments

Leading Companies in EMV Chip Cards

Several leading companies have increased the adoption of EMV chip cards globally, which contributes to enhanced security and the transition toward digital payments.

Here are the major companies utilizing EMV chip cards:

• Visa Inc.: Visa is one of the biggest payment processing companies and has had a major role in adoption of EMV chip technology. The company has contributed significantly in the implementation of EMV across the world to ensure that both, merchants and consumers embrace the benefits arising from the use of secure technologies. Visa initiates by including various resources for merchants to upgrade to chip technology to reduce the rate of fraud for Chip and PIN transactions on the point of-sale equipment.
• Mastercard: Similar to Visa, Mastercard plays an important role in the implementation of EMV standards. The company promotes the usage of secure payment technologies through its channels and working relationships with financial institutions. Mastercard has further ensured that the merchants were informed about the benefits of applying EMV technology, for instance; the elimination of duplicated frauds and customer trust during transactions.
• American Express: American Express support for EMV integration in chip cards since they also issue the cards to their customers. It is noteworthy that the company underscores that EMV technology greatly reduces fraud risks with the assistance of dynamic authentication data during the actions. American Express also assists merchants to upgrade their systems to accept EMV payments to enhance the general security of payments.
• Discover: Discover is another major company which supports the EMV technolgy. Discover Financial Services is a member of the group that oversees that EMV specifications, and thus, it encourages the adoption of chip technology within its network. The company aims to improve security of transactions for the consumers and merchants through adopting the use of EMV chip cards that are very hard to counterfeit.
• JCB: JCB (Japan Credit Bureau) has also embraced EMV technology as part of its commitment to secure payment solutions. As a member of EMVCo, JCB collaborates with other major card networks to promote global interoperability and acceptance of secure payment transactions. The adoption of EMV standards allows JCB cardholders to enjoy enhanced security when making purchases internationally.
• UnionPay: UnionPay is a significant player in the global payments market and has adopted EMV chip technology as part of its strategy to enhance the transaction security. As a member of EMVCo, UnionPay operates alongside other major credit card companies to ensure that its cardholders benefit from the same level of security provided by EMV specifications. This commitment helps facilitate secure transactions for UnionPay users worldwide.

Leading Companies in Contactless Payments

There are several companies that enables the shift towards the contactless payments and determines the consumer expectations and collective consumer behaviour when it comes to digital transactions. Together this represents added contributions toward shift toward convenience and security in payments methods.

Here are the major companies utilizing Contactless Payments:

• Apple Pay: Apple Pay allows users to make payments in stores, apps, and on the web by using devices such as iPhone, Apple Watch, iPad, and Mac. It utilizes Near Field Communication (NFC) technology for contactless transactions and securely stores payment information in a Secure Element within the device. Users authenticate these transactions through biometric methods such as Touch ID or Face ID, or via a passcode. Apple Pay is widely accepted at over 90% of U.S. retailers and supports various card types without requiring specific terminals.
• Samsung Pay: Samsung Pay stands out due to its capability to work with both NFC and Magnetic Secure Transmission (MST) technologies that allows it to be used at virtually any point-of-sale terminal. Samsung Pay enhances security through tokenization and requires user authentication via fingerprint or PIN. This service also integrates with the Samsung Wallet app for managing cards and transactions.
• Google Pay: Google Pay enables users to make payments via Android devices by storing payment information securely in the app. Similar to Apple Pay, google pay utilizes NFC technology for contactless transactions. It also combines loyalty programs and offers promotions directly within the application that makes it a versatile tool for both consumers and merchants. It puts security is a priority, with features such as transaction alerts and encryption of payment data.
• Cash App: This allows users to send money instantly to others using their mobile devices and includes a feature for purchasing goods at participating merchants through its Cash Card. The Cash Card can be used such as a debit card for tap-to-pay transactions at physical locations. Cash App emphasizes simplicity and speed in its interface while providing security measures such as transaction notifications.
• Venmo: Venmo is primarily known for its P2P payment capabilities but it also has  introduced features for in-store purchases using its Venmo Card. Users can load funds from their Venmo balance onto this card, which can then be used for tap-to-pay transactions at any merchant accepting Mastercard payments.

Limitations of  EMV Chip Cards and Contactless Payments

Limitations of EMV Chip Cards

When it comes to in-person transactions, EMV chip cards are secure but it comes with several limitations:

• Security Vulnerabilities: While EMV technology helps reduce the risk of counterfeit card fraud, it does not protect against all types of fraud. For example, if a card is lost or stolen, the data can still be compromised since EMV does not encrypt the transaction data stored on merchant devices. Furthermore, hackers may exploit vulnerabilities in the chip technology itself.
• Higher Costs: Implementing EMV technology can be expensive for merchants. The costs associated with upgrading point-of-sale terminals and training staff can deter some businesses from adopting EMV systems.
• Slow Transaction Speeds: At first, EMV chip transactions faced criticism for being slower than traditional magnetic stripe transactions. While improvements have been made, some consumers still encounter delays at the point of sale due to the necessary card insertion and processing time.
• Limited Acceptance: Not all merchants have upgraded to EMV-compatible terminals, which can lead to inconvenience for consumers who rely on their chip cards. If a terminal is not equipped to read EMV chips, customers may need to resort to using magnetic stripe functionality, negating some security benefits.
• Complexity in Usage: The requirement for consumers to understand how to use chip cards correctly (e.g., inserting the card rather than swiping) can lead to confusion and frustration at checkout.

Limitations of Contactless Payments

Contactless payments promotes payment convenience to the consumers but it may also have several limitations:

• Limited Acceptance: While contactless payments are becoming more common these days, many small retailers still do not support this payment method. This inconsistency can frustrate consumers who prefer contactless transactions.
• Transaction Limits: Many regions impose limits on the amount that can be spent in a single contactless transaction without requiring additional verification (e.g., entering a PIN). For example, in U.S., there is a limit of $100 for contactless payments, which some consumers find restrictive.
• Technical Barriers: Users must have NFC-enabled devices such as smartphones, smartwatches or cards to utilize contactless payments. This requirement can exclude individuals with older technology or those who are unfamiliar with this mobile payment systems.
• Security Concerns: Despite the fact that contactless payments are encrypted and tokenized, there are concerns that if the consumer’s’ card is lost or stolen it can be used for unauthorized purchases. It means that with the option of tapping, one does not require entering a PIN, which may have undesirable implications.

Conclusion

The future of financial transactions is reshaping by adopting the secure payment technologies such as EMV chip cards and contactless payments which is important for both consumers and merchants. As cyber threats continue to grow, these innovations protect sensitive financial information and enhance user experience through speed and convenience. Businesses can enhance their reputation, reduce the risk of fraud, and ultimately drive customer loyalty by prioritizing secure payment solutions.

FAQs

How does the chip work on a credit card?

The chip in a credit card, known as an EMV chip which securely stores cardholder information and generates a unique one-time-use transaction code for each purchase. When the card is inserted into a compatible terminal, the EMV chip communicates with the terminal to authenticate the transaction and protect against fraud which makes it significantly more secure than magnetic stripe cards.

What are the EMV chip companies?

The EMV standard was developed by three major companies: Europay, Mastercard, and Visa. These companies, along with others such as American Express, Discover, JCB, and UnionPay, are part of EMVCo, the organization that oversees the development and management of EMV specifications.

How does contactless payment work?

EMV contactless payments allow users to make transactions by simply tapping their card or mobile device near a compatible terminal. This method utilizes Near-Field Communication (NFC) technology, which enables secure data exchange without physical contact. Each transaction generates a one-time-use security code which enhances security against fraud.

How do I get contactless payment?

To use contactless payment, you need a credit or debit card that has the contactless symbol . You can also use mobile payment apps such as Apple Pay or Google Pay that support NFC technology. Simply tap your card or device on a contactless-enabled terminal to complete your transaction.

What is the future of contactless payments?

The future of contactless payments looks promising as adoption rates continue to rise globally. With increasing consumer preference for convenience and speed, more merchants are expected to upgrade their payment systems to support contactless transactions. Innovations in security measures will also likely enhance user confidence in these payment methods.

How does credit card contactless payment work?

Credit card contactless payments work by utilizing NFC technology that allows communication between the card and the terminal without physical contact. When the cardholder taps their card on the terminal, a secure transaction is initiated using encrypted data and a unique transaction code generated for that specific purchase.

What is the EMV credit card method?

The EMV credit card method refers to transactions made using cards embedded with an EMV chip. This method enhances security by generating unique transaction codes for each purchase and requires authentication through either a PIN or signature. It significantly reduces the risk of counterfeit fraud compared to traditional magnetic stripe cards.

Is contactless payment safer than chip?

Contactless payments are generally considered safe due to their use of encryption and unique transaction codes for each purchase, similar to EMV chip transactions. However, while both methods offer enhanced security over magnetic stripe cards, some experts argue that physical insertion (dipping) provides an additional layer of security as it requires direct interaction with the terminal.

What is dipping method used in EMV chip cards?

The dipping method involves inserting an EMV chip card into a reader at a point of sale. The card remains in the reader while the transaction is processed, allowing for secure communication between the card and terminal. This method ensures that the unique transaction code generated by the chip cannot be reused or intercepted by fraudsters.