Kenya next great migration,the “EMV”

Its migration season for Kenya, last year was digital migration which met a lot of resistance from consumers. Next in line is the wildbeast migration, which usually occurs on September. This time we have another one on 31st march (confused), lol! no its the “EMV MIGRATION” (Seems Kenya will have another worlds wonder of migrating nation).EMV is replacing almost 40 year old magnetic stripe card transaction processing and Kenya banking industry is gearing up to migrate to new EMV chip technology standard. But whats in all this hullabaloo of migrations? What are the benefits?

“Central Bank of Kenya data shows that there were more than 10.7 million ATM, credit and debit cards in circulation by year end 2012, this represented a 6 per cent increase over the previous year, while the value of the ATM transactions alone during the same period in 2012 was Kshs.156, 891 million which is up from 140,825 million the year before. This can be attributed to an impressive economic growth and rising levels of disposable incomes, Kenya is growing a developing nation remember we are headed somewhere if not nowhere.

With these facts at hand this is a clear indicator that payments technology is also changing; consumer purchasing experience is getting to the next level locally and globally, a generation of payment products and services build on the current safe, simple and smart ways to pay while bringing greater security and new capabilities to every transaction has been the key factor for every consumer. This transformation is about more than just a specific device or rather devices but it’s about creating a holistic purchasing experience supported by greater security and control” (The Kenyan banker, 2014).

EMV stands for Europay, MasterCard and Visa, which is a worldwide standard for interoperability of integrated circuit cards (IC cards or “chip cards”) which are capable to operate in point of sale (POS) terminals and automated teller machines (ATMs), for authenticating credit and debit card transactions.“Chip cards using the EMV standard contain an embedded microprocessor that stores and processes encrypted information, making it difficult to copy or counterfeit” (Information Security Media Group, Corp., 2014)

The venture consist of three international payment card companies namely Europay, MasterCard and Visa who came together and decided to come up with a standards that can be accepted internationally with no barriers of different software and hardware manufacturers. The objective was to ensure the security and global interoperability of chip-based payment cards. The standard is now defined and managed by the public corporation EMVCo LLC.

The fist to be absorbed in the gravy train was Europay International SA by MasterCard in 2002. JCB (formerly Japan Credit Bureau) followed next in December 2004, and American Express joined in February 2009. In May 2013 China UnionPay with an equal 1/5 interest in the standards body.

The EMV standards defines the interaction at the physical, electrical, data and application levels between IC cards and IC card processing devices for financial transactions. There are other standards currently in place like ISO/IEC 7816 for contact cards, and standards based on ISO/IEC 14443 for contactless cards (PayPass, payWave, ExpressPay) but EMV is emerging to be the most preferred.

The main reason is because of security flows that have been exploited leading to fraud by magnetic strip cards. Fraudsters have found it easier to steal customer information stored on the magnetic strips, enabling them to execute illegal transactions running into millions of shillings. “This migration is about an upgrade that will drive both innovation and security for all parties, most importantly for consumers and cardholders,” says Chris McWilton, president of North American markets at MasterCard (Information Security Media Group, Corp., 2014). As opposed to magnetic stripe technology, a chip is difficult to crack. An important aspect of EMV is its use of dynamic data. Each transaction carries a unique ‘stamp’, which prevents the transaction data from being fraudulently reused, even if the data or the card is stolen. To understand how EMV chips have changed the world of electronic payment security, it’s important to know how they work”(Jabu Basopo, 2013)

How it works
“In many ways, the card works like a mini computer. The chip provides three key safeguards: it can store information, process information, and it is capable of storing secret information and performing cryptographic processing, a computing function that enables numerous protection features that prevent unauthorized retrieval of data. It is very difficult to clone or replicate the chips and the circuitry that makes them work. Each chip is unique and makes each card inimitable. Chips and software are constantly evolving and allow the payment industry to stay ahead of criminals and new exploits that may be discovered in the future.

When you make a purchase, the card must come in contact with an acceptance terminal. The terminal powers the card and activates the chip, which verifies that the card is authentic and aids in the authorization of the transaction. The chip actually determines and enforces many of the payment rules set by the issuing bank. This can include a number of additional security features such as verifying the cardholder’s identity through PIN, or request the terminal to prompt for a written signature. The bank that issues the card can define the rules and program it into the chip depending on the type of security deemed necessary.

Chips have saved banks massive costs in fraud. EMV has cut down on the production of counterfeit cards that were used in suspect transactions. When fraud has been detected, banks have to block then replace cards that have been counterfeited or fraudulently used, and ultimately they are responsible for fraudulent payments to merchants.” (Jabu Basopo, 2013)

“Twenty-two countries, including most of Europe, Mexico, Brazil and Japan, have accepted EMV technology, according to the Smart Card Alliance. About 50 other countries, including China, India and most of Latin America, are in various stages of migrating over the next two years. In 2010, Canada began rolling out chip-and-PIN cards and plans to stop accepting magnetic stripe payment cards at ATMs after 2012 and at POS terminals after 2015”(Total System Services, Inc. , 2014).

 What changes in technology does EMV bring in?

“EMV will require new hardware and software changes at the point of sale but the biggest advances in the payment industry will come through the product strategy convergence through the development of gateway functionality and connectivity. Gateways will provide increased functionality, a wide array of connectivity, mobile wallet acceptance and better security. Many processors have open APIs and SDKs for VARs and ISVs to connect directly to their platforms. These gateways will connect not only to the associations’ networks but also various debit networks, alternative payment sources . Mobile wallets will also be adopted at a faster rate because the merchant can use EMV to collect payment for multiple payment types and more favorable rates. Security will be improved due to the PAN, and other identifiers will be encrypted and/ or tokenized from the start to the end of the transaction. Since Visa’s purchase of CyberSource (a gateway) and its subsequent actions including the open API, mobile wallet and push for EMV, Visa has clearly shown that this is the way of the future of technology in the Acquiring industry.” (Total System Services, Inc. , 2014).

Am looking forward to see how all this migrations will affect the consumers in Kenya. Seems to me it will be very interesting technological and environmental year!

References
MasterCard Exec: It’s Time for EMV, Information Security Media Group, Corp., 2014, Accessed on 31st January 2014 at 0908hrs. From: http://www.bankinfosecurity.com/mastercard-exec-its-time-for-emv-a-6455

Europay/MasterCard/Visa (EMV) Smartcard Payment System, Total System Services, Inc. , 2014, Accessed on 31st January 2014 at 0948hrs. From: http://www.tsys.com/acquiring/engage/white-papers/Europay-MasterCard-Visa-EMV-Smartcard-Payment-System.cfm

Kenyan banks to meet EMV (Euro pay, MasterCard and Visa) Chip standards, The Kenyan banker, 2014, Accessed on 31st January 2014 at 0908hrs. From: http://kenyanbanker.wordpress.com/2013/04/06/kenyan-banks-race-to-meet-emv-euro-pay-mastercard-and-visa-chip-standards/

How EMV technology protects you from ATM fraudsters, Jabu Basopo, 2013. Accessed on 31st January 2014 at 0908hrs. From: http://www.capitalfm.co.ke/business/2013/08/how-emv-technology-protects-you-from-atm-fraudsters/

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