In Ernest Hemingway's literary classic from 1926, "The Sun Also Rises," there emerges a pivotal moment when a character named Mike is asked how he went bankrupt. Mike delivers a succinct, yet profound explanation: "Two ways. Gradually, then suddenly."
This evocative phrase, "gradually, then suddenly," resonates as a fitting metaphor for the worldwide ascendancy of EMV (Europay, MasterCard, and Visa) chip technology in the realm of card payments. Presently, a staggering 93% of all card-present transactions conducted across the globe utilize EMV chip technology, a substantial leap from the 76% mark recorded as recently as 2019. As EMV has become the standard for card payments around the world, it is interesting to trace the genesis of this transformative technology.
The genesis of chip cards finds its roots in the visionary work of French engineer Roland Moreno. In 1975, Moreno introduced a revolutionary plastic card with an embedded microchip that could perform complex calculations enabling stronger security measures. The following year he successfully demonstrated that this smart card could be employed to enable electronic financial transactions.
At the time, magnetic stripe technology was the ubiquitous standard for payment cards. However, in the early 1980s, French banks embarked on a pioneering journey to evaluate chip cards as a potent weapon against fraud. By 1994, all French bank cards bore a chip, leveraging a French-developed specification for chip card payments. By issuing chip cards with PINs, French banks achieved a remarkable reduction in fraud stemming from counterfeit and lost and stolen cards.
Inspired by the French success, several European markets began issuing chip-based bank cards during the 1990s. Their motivation lay in countering the escalating fraud arising from counterfeit and lost and stolen cards. However, each of these initiatives relied on domestic market specifications that lacked interoperability. The proliferation of proprietary domestic chip specifications across Europe during the early 1990s enabled chip technology to provide protection against fraud for domestic transactions, but magnetic stripe technology remained the sole method of acceptance when cardholders ventured beyond their local markets.
Banks in the United Kingdom and Japan found themselves at a crossroads in the early 1990s, contemplating adding the chip technology to their payment cards. Both markets were apprehensive about perpetuating non-interoperable domestic chip environments. Consequently, the impetus for a universal chip standard was ignited. In 1994, three international payment giants—Europay, MasterCard, and Visa (EMV)—collaborated to develop a global chip specification for payment systems. This momentum towards globalization persisted, with JCB joining the fold in 2004, followed by American Express in 2009, and the inclusion of UnionPay and Discover in 2013.
The widespread adoption of EMV technology has yielded an immense reduction in fraudulent activities worldwide. This transformative impact is vividly illustrated by the following examples, showing how the EMV migration in different parts of the world has led to dramatically decreased levels of fraud:
Roland Moreno, in his laboratory back in 1975, could scarcely have envisioned the monumental triumph that EMV chip technology has become. Yet, another Hemingway quote, from his Nobel Prize acceptance speech, aptly encapsulates this remarkable achievement: "For a true writer, each book should be a new beginning where he tries again for something that is beyond attainment. He should always try for something that has never been done or that others have tried and failed. Then, sometimes, with great luck, he will succeed."
EMV, much like the literary pursuit Hemingway describes, has indeed achieved the extraordinary.
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