Illegal skimming, copying magnetic stripe cards to produce duplicates and pillage the associated bank accounts, is a big expense for banks. That is why the implementation of the secure EMV-chip – a replacement for current magnetic stripe cards – should be standardized across Europe as quickly as possible. Luckily, we’re well under way.

Before we delve further into the advantages of the EMV-chip, first some background information.

In March 2006, European banks agreed to phase-in the EMV payment standard. Currently, European countries are currently in full swing implementing this standard in a project named Single Euro Payments Area (SEPA).

EPC
The goal is to establish a truly joint payment and transaction system that allows Europeans to make transactions and access their bank account using one secure bank card.

The EMV card offers both increased security and increased usability. The EMV standard is an initiative of Europay, Mastercard and Visa and its European implementation is managed by the European Payments Council (EPC).

Two systems
Part of the EMV standard is the EMV chip, which replaces the magnetic stripes still commonly found on many bank cards. Bank cards equipped with an EMV chip can be used both as an debit card and as an electronic wallet. Instead of swiping the EMV card through a magnetic reader, the card is inserted into a terminal. Credit card users who used to sign to authorize a payment will now have to enter a PIN code just like debit card users.

The most important improvement of the EMV chip over the traditional magnetic stripe is that criminals are no longer able to skim the cards. Since the damages incurred by skimming are usually paid for by the banks, they have every reason to attempt to halt this illegal practice.

Besides the financial damages, shopkeepers have noticed a decrease in customer faith in the magnetic stripe card. Going back to cash payments is not an option, amongst others because of the increased costs of handling cash money, and the increased risk of robberies.

Damage
In the meantime, skimming is a fast growing trend. In the Netherlands alone there have been over 900 reports of skimming, together targeting several tens of thousands of account holders. The combined damage in 2008 was 31 million euro, twice the amount of damage incurred in 2007.

Taking in account the disadvantages of the magnetic stripe, the fact that the Netherlands are behind schedule, and the fact that transactions made with magnetic stripe cards account for two third of the revenue, it is understandable that Dutch banks and retailers want to start using the EMV cards as soon as possible.

And it looks like they’ll get what they’re wishing for. Last wednesday, parties involved agreed that the EMV card will be standardized across the Netherlands in 2011. Two years before the original deadline in 2013.

Because not all participating countries will be able to standardize the EMV card at the same time, the magnetic stripe cards will continue to be usable next to the EMV cards for a while.

Responsible
In any case, implementing the EMV card will not be an easy task: besides replacing all the account holders’ cards, all the ATM machines and terminals will have to be modified or replaced and then tested.

In the Netherlands, banks will finance the modification of the ATM machines, while some retailers are responsible for replacing the terminals in their shops. Whether the retailer has to pay for a new terminal depends on their contract.

Skimming countermeasures
Banks have tried various countermeasures in the past, in an attempt to foil skimmers. Among these countermeasures are advanced detection methods, allowing banks to respond more quickly, and modifications to ATMs that make it harder to install skimming equipment. Unfortunately, the problem persists. Although the amount of ATMs targeted by skimmers has dropped, they have instead moved their focus on ticket machines and terminals in shops.