SALT LAKE CITY — Smart technology is fast becoming the standard in virtually every industry, including retail commerce.

With millions of consumers spending billions of dollars annually, the potential for fraud is nearly as great as the sum of profits reaped by retailers and the credit card companies that are integral in the process.

Across the country, financial institutions are introducing the EMV chip card that will be widely used by the end of 2015. The new credit card improves fraud protection for consumers and changes the way they make payments.

What it is

EMV is an acronym that stands for Europay, MasterCard and Visa, the three companies that created the standard that is now managed by EMVCo, a consortium with control split equally among Visa, MasterCard, JCB, American Express, China UnionPay and Discover, explained Richard Reed, Zions Bank executive vice president and director of bankcard and customer channel management.

"In essence, it's pushing fraud out of the system, which is really something we need in the U.S.," Reed said.

EMV is a payment application that resides in a computer chip embedded in a credit or debit card, he said. By the end of the year, U.S. financial institutions will issue 600 million chip cards, which are approximately half of all cards in circulation, according to the online EMV Migration Forum.

EMV cards are smart cards that store their data on integrated circuits rather than magnetic stripes, though many of them also have stripes for backward compatibility. They can be contact cards that must be physically inserted — or "dipped" — into a reader, or can be read over a short distance using radio-frequency identification technology, Reed said.

Additionally, payment cards that comply with the EMV standard are often called chip-and-PIN or chip-and-signature cards, depending on the exact authentication methods required to use them, he added.

Increased security

The migration to EMV is expected to greatly reduce counterfeit card fraud, enable cardholders to use secure EMV payment cards globally and prepare for near field communication — or NFC — mobile contactless payments, explained Don Oldroyd, senior examiner with the Utah Department of Financial Institutions. NFC is a standards-based wireless communication technology that allows data to be exchanged between devices that are a few inches apart.

The chip card performs cryptographic processing by assigning a unique code to each transaction to help prevent data being fraudulently reused. Analysts say that EMV technology will be the standard payment application for significantly enhanced security.

The standard has been in use across Europe for years, Oldroyd said.

"They've greatly reduced the fraud when people have used their (EMV) cards," he said.

The sooner the U.S. adopts the standard, the sooner fraud will begin to decline here as well, Oldroyd added.

Incentive to implement

Three months ago, Target agreed to pay $19 million to banks that issued MasterCards involved in a 2013 data breach. Filings with the U.S. Security and Exchange Commission showed that the breach cost the retailer another $252 million in expenses in addition to a class action suit for $10 million.

In December 2013, hackers stole 40 million credit and debit card numbers along with 70 million data records, including names, mailing addresses, email addresses or phone numbers of Target customers, the company reported.

This fall, the Payment Networks' Liability Shift associated with EMV is due to take effect in the United States.

Currently, credit card issuers are liable for most counterfeit card fraud that occurs at retailers' in-store locations. But starting Oct. 1, that responsibility will swing to merchants in certain cases unless they have replaced or upgraded their card acceptance and processing systems to use chip-enabled devices and applications to process payment transactions.

"The intent here is to really incent both parties to go ahead and implement the technology so that you get the power and the benefit of this higher security payment card," Reed said.

With the added benefit of encryption, "it makes it really difficult for fraudsters to replicate," he said.

Though criminals will always seek methods of committing fraud, this new standard will go a long way toward preventing future breaches like the Target case, Oldroyd said. However, the potential for hacking may still exist for an individual's online purchases, he noted.

"Who knows? Maybe the fraudsters are going to migrate more toward that type of transaction," Oldroyd said. "Nevertheless, we hope to see the EMV standard adopted."

Reed said digital payment methods, such as Apple Pay or Google Wallet, might also become a tactic to limit fraud while providing consumers with an efficient manner to pay for purchases.

Overall, industry officials say the EMV method should offer consumers a safe, effective option to conduct their retail business.

"It's going to be a different user experience," Reed said. "Today, we're used to taking out our cards and swiping them. When you get an EMV card, it will be a dip transaction much like what we do (at ATMs)."

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