Will EMV protect merchants from data theft?
Through a special arrangement, presented here for discussion is an excerpt of a current article from Commerce Anywhere Blog.
Will the EMV (Europay/Mastercard/Visa) standard protect retailers? About as well as PCI certification does today. I used to work with the EMV when I developed software for smartcards and the technology is certainly better than the ancient magstripe cards we use today. But it was created before e-commerce really took off, and the U.S. implementation of EMV isn't very secure. Let's imagine for a moment that Target was ahead of the 2015 deadline and already had smartcard readers in its stores (like they did back in 2001). Would they have been protected?
Since the smartcard has a tiny microprocessor embedded, it can do calculations like encryption. When the card is inserted, it authenticates the POS, and the POS authenticates the card using a shared secret (typically an encryption key). But in the case of Target, the POS was legit so they would have trusted each other anyway.
The typical Chip & PIN implementation in Europe requires the cardholder to enter a PIN to unlock the card, but in the U.S. the PIN is optional and usually not required. Do you know the PIN number for your credit card? No one does because the banks think it would be inconvenient.
Since trust has been established, the smartcard sends over the account number and other associated data. It's in the clear for a brief moment before it's encrypted and sent to the bank. This is the same situation as with the magstripe. Until the banks establish the ability to support end-to-end encryption and/or tokenization, we've still got the same issue.
There is one area where EMV helps a little. The thieves still get the credit card data but they won't be able to create fake smartcards. Those chips need to be programmed with the right data and keys, which are only available at the issuing bank. So even though they managed to get the data, they can't create forged cards. Except for one little issue — they can just use the card data online. No need to create cards at all.
Just as PCI didn't really make retailers safe from fraud, neither will EMV. It's a step in the right direction, but far from perfect.