Impacts of migration to EMV

Sirus Zafar, Director Application Development and IT, MUZO

Simultaneously with the lunch of EMV chip cards it is necessary to adapt Card Management systems, Front office and Back office systems, Personalization systems and ATM and POS networks. Impacts to these systems are enormous and it involves a sizeable investment.

One of the biggest advantages of chip cards is presented in the form of a higher level of security. This is achieved through more advanced authentication and verification of cardholders.

Cards typically work with symmetric and asymmetric keys. Using this technology will require complex key management of card-issuance systems. Card-issuance systems must be upgraded to include the Data Preparation Module (DPM).

The primary function of the DPM is the preparation of all relevant data, including cryptography, which will be loaded to the chip. Also personalization devices must equip required technology for personalization of EMV chip cards. The essential part is the HSM module with relevant applications (VSDC, MchipLite).

It follows from this that investments connected with chip migration are sizeable. The question is if this investment will be profitable. It is necessary to find ways to recoup this investment in chip migration. There are several possibilities. It is a commonly held belief that fraud will decline markedly with the introduction of chip cards. Unfortunately, the reduction in fraud will not be enough to offset the investments in chip technology.

Another area in which savings are expected is in communication of POS terminals with authorization centres. Due to EMV chip cards more off-line transactions will be possible, which may reduce communication costs. But it must be acknowledged that these costs savings may not single-handedly make the investment in chip card technology worthwhile. The reason for this is the unclear strategy of banks regarding the usage of off-line transactions.

Currently banks tend to prefer full on-line processing. This is because many banking products (tele-banking, e-banking, GSM-banking) in use today require on-line processing to maintain control of clients. Banks’ ability to exploit off-line transactions will dictate the level of communication cost-savings.

Chip cards can include not only EMV applications, but also others. Additional applications could be for example a loyalty or a secure access (e.g. access to banking account). In future, these additional applications could become a powerful marketing tool for banks. Proper additional application could generate new card holders as well as merchants and induce a higher frequency of card usage.

Ultimately the introduction of EMV technology will require significant investment by the banking industry. Banks will probably be able recoup this investment through a combination of the aforementioned possibilities.