Background of the EMV card standard

Electronic cash

Chip cards that implement the concept of electronic cash also store the amount on the card, when writing to the card, an equal amount is debited from the account, just as it happens when issuing cash. The amount is considered to have been issued to the cardholder.

The cardholder can perform payment operations at the same time, as in the case of other cards with a stored amount: the sufficiency of the amount on the card is checked, after which (if the verification result is positive) the amount on the card is reduced by the amount of the operation. An operation with a card containing a record of the amount of electronic cash can be anonymous.
depending on the functional and technological models, electronic cash can be transferred either to another card or to a payment terminal when performing a transaction. The transfer of amounts from card to card is used, in particular, in one of the most famous systems of electronic cash on chip cards – Mondex. This system was implemented in England in the mid-90s. At first, it was supported by only one Bank – Natwest, then several other banks joined the system, after which the company Mondex Int. was created, which promoted the system in various countries. The system began to develop in the form of national projects implemented as franchising. In the late 90’s, MasterCard became the main shareholder of Mondex Int.

To store funds transferred from a Bank account, a device called a wallet (Mondex wallet) is implemented, which allows you to transfer funds from card to card, read the balance, and change the PIN. Funds can be transferred to the card from your wallet as needed. In this way, the system’s security was improved: part of the money is in the wallet, part is on the card.

In addition, the system provides for the use of ATMs (in case someone needs real cash, not “electronic”) and trading terminals. The latter transfer funds from the buyer’s card to the seller’s card, who then, using a Mondex-compatible phone, can transfer the funds accumulated on his card to the company’s Bank account (the analogy with cash is clearly traced).

Note that if the transaction amount is transferred from the buyer’s card to the merchant’s card, there is a theoretical risk of secondary use of electronic cash using the seller’s card. However, this is not possible in practice, since the payment system that uses e-cash cards has restrictions on transactions with merchants ‘ cards. This ensures the so-called auditability property of operations. The e-money model is becoming less dangerous. Similar restrictions are implemented in most national payment systems of Mondex. If such restrictions were not supported, the merchant could use their card (for example, to pay for goods), which would make it possible to ignore trading operations when paying taxes . But they usually only have the ability to credit the amounts recorded on the card to their Bank account.

Projects of combined products of payment systems based on smart cards

One way to combine products is to combine pre-authorized card and debit/credit card applications. MasterCard offered the MPAD solution-MasterCard Preauthorized Debit based on the EMV application M/Chip4, Visa-VSDC++ solution, which combine these applications.
The principles of these technologies are similar: the EMV card stores information about the total limit, the amount of which its holder can make several payments offline. At the same time, POS terminals set a limit on the amount of one of-line operation. If the transaction amount does not exceed the established limits, it is performed offline, otherwise the POS terminal automatically requests online authorization, after which information about the new limits is stored in the memory of the card chip, adjusted in accordance with the current account balance. As a result, an operation for the same app can be performed offline or online, depending on the transaction amount and the limits set on the card. In addition, the operation is performed with simultaneous use of both the account balance and the remaining limit on the card (in this case, everything depends on the flexibility of the processing system). This scheme provides automatic replenishment of the card that is invisible to the cardholder, without special expenses for creating a separate infrastructure necessary for this task. If the terminal equipment supports additional m/Chip4 or VSDC++ functionality, the cardholder can independently change its offline limit in real time within the amount allowed by the issuing Bank. Thus, the process of selecting the payment mode on the POS-terminal is actually “behind the scenes”, as is the process of adding funds to the limits, which is also performed automatically (except for cases when the limit is set by the cardholder). E-wallets did not provide any of these features.

In 2003, the MasterCard payment Association proposed the Chip Authentication program, which was designed to ensure the security of remote transactions. An example of this payment system initiative is the technology for making secure purchases in online stores by using portable card readers connected to a computer on the user’s side and the SecureCode Internet authentication system on the issuing Bank’s side.
in turn, Visa introduced its new Visa Smart Secure Storage solution, which is part of the Visa Smart program. This was the first step of the payment system to encourage banks to issue multiapplication EMV cards. For example, Visa Smart Secure Storage allows issuing banks to create pre-formatted areas in the card’s memory (so-called cells), in which additional non-banking applications are recorded in the future.

An example of an EMV-compatible system for contactless payments with data transmission over an infrared channel is a joint project of Visa International and SK Telecom (SKT is the largest South Korean mobile operator). The project is based on the idea of implementing a mobile payment system using microprocessor cards and transmitting data via an infrared channel. The system provides customers with additional convenience when making payments using Visa debit or credit cards and mobile phones. The solution is based on EMV and Infrared Financial Messaging, or IrFM (an international standard that ensures device compatibility when transmitting data over infrared channels) and allows Visa cardholders and SKT subscribers to pay for goods and services by sending a protected infrared signal from a mobile phone to miniature infrared receivers embedded in POS terminals at points of sale, vending machines, subway kiosks, toll booths on motorways, buses, and other devices that accept payments. At the same time, the cardholder’s payment data will be securely stored in an EMV-compatible mobile phone microprocessor. It is obvious that the initialization of payment transactions in the future will not only occur the corresponding mobile phones, but also from other mobile devices that have an IR port.
as a result of an appeal by Visa and MasterCard members to the payment systems, which contained proposals to unify the approaches of payment systems to the EMV standard, an addition to the standard for acquirers called CCD (Common Code Definitions) appeared. Thanks to this addition, banks receive a standardized interface that will allow them to accept and service chip cards from two payment systems according to the same rules. The next step is to unify the payment application for card issuers, which will result in A Common Payment Application. It is expected that the certification for CCD will be very simple and consist of several additional tests. The CPA application is a modification of the EMV chip standard and does not exempt banks from the need to certify the acquiring of existing Visa and MasterCard applications.

In General, it should be noted that chip cards as products of payment systems are in constant development. It can be argued that chip cards are associated with many interesting technical solutions and in the next decade they will be at the peak of technological development of payment systems.

Payments via ATMs

The system of payment for mobile operators ‘ services in ATMs and branches of banks participating in the STB payment system is being successfully developed. Today, two dozen telecommunications operators use the services of banks participating in the payment system to sell at ATMs virtual prepaid cards (Virtual Scratch Cards). This allows Telecom operators to reduce the cost of issuing prepaid cards, and Bank card holders to get the opportunity to conveniently and quickly pay for the services of telecommunications providers in a set of other banking services.

Cash acceptance terminals

At the end of 2002, STB CARD specialists completed testing of terminals intended for accepting cash. New types of transactions were introduced within the STB payment system, such as making a Deposit to a card account, paying off a loan, and paying for services of various service providers.

International payment system. Diners Club International

The consequence of a historical dinner
In 1998, the invention of a universal payment card and a payment system for servicing it was named one of the 75 greatest inventions of mankind*(58). It is unlikely that Frank McNamara, the head of a small new York financial company, could have imagined that the consequences of his friendly lunch with the lawyer Ralph Schneider and the not-so-successful Hollywood producer Alfred Bloomingdale would be so Grand.
They met at a restaurant in Manhattan, not far from the prestigious Empire State Building. It was 1949. This was a period of relative prosperity for the American economy, which had shown steady growth over the previous decade. Fierce competition reigned in almost all consumer markets. Owners of stores, restaurants, hotels, and other businesses were no longer concerned with attracting new customers, but rather with winning their loyalty. For this purpose, they often used a technique invented several decades earlier – the issuance of credit cards for regular visitors to the institution. Since the basis for selling a product or providing a service on credit, as a rule, was a personal acquaintance of the owner of the company and the buyer, a large shopping list required a whole pile of credit cards – separately for each outlet.
At the table, the conversation turned to one of the clients of Hamilton Credit Corporation (the name of Frank McNamara’s Corporation). This person, who enjoyed a good financial reputation among business owners, came to the conclusion that his positive credit history is an intangible asset that can be considered as a commodity. He put this product into business: he began to act as an intermediary between the owners of retail and service points and third parties – his personal acquaintances. Entrepreneurs contacted him by phone and received permission from him to record the cost of other people’s purchases on his account. He independently made settlements with the owners of enterprises, and then the debtors had to settle with the risky entrepreneur, rewarding him for the service with a certain percentage of the loan amount.
The unusual financial scheme seemed interesting to the participants of the historical dinner, but not without a flaw. This person’s clients were people who did not have the best reputation – those who were denied credit for some reason. As a result, most of them could not repay their debts, and the businessman had to borrow money from Hamilton Credit Corporation, i.e. from Frank McNamara, to pay off the owners of retail and service outlets.

Friends decided to borrow from someone else’s sad experience the idea of an intermediary between sellers and buyers who want to use the loan. However, the intermediary function should not be performed by an individual, but by an organization. And the clients of this company would be people of a sufficiently high social status, for whom credit is not a means to avoid lack of money, but just a convenient form of payment for purchases. Interested in the discussion, friends suggested that it is not the buyer who can pay for the intermediary’s services, but the owner of the point of sale – after all, the latter has new clients that he would not have received otherwise.

The friends called the owner of the restaurant where the dinner was taking place to a table and asked him how much he was willing to pay for new customers. He answered: “Seven percent”. This is how the rate that has dominated the credit card market for several decades appeared. Later, when the card business was already flourishing, the restaurateur was once asked where he got this figure. In response they heard: “The real estate agent would have demanded ten percent.”..

Soon, the trio founded a new company with an authorized capital of $40,000. Of these, $35,000 was Hamilton Credit Corporation’s debt, and only $5,000 was real money. This $5,000 was contributed by Bloomingdale’s-more out of friendship than in the hope of a profitable business.

The organization was named Diners Club, which in Russian can be translated as”club of restaurant regulars”. The fact is that the world’s first universal credit cards (as opposed to the specialized ones that were distributed earlier) were distributed free of charge to frequent customers of restaurants located near the Empire State Building. To get a cardboard plate with the Diners Club logo, a person just had to look decent and declare that he worked in a business center building. Flyers advertising the new service were pushed under the office doors by friends.
We can’t say that the new service was in great demand. Initially, 10-12 restaurants participated in the project. Their owners were required to pay Diners Club 7% of the amount of each purchase made with the card, and club members were required to pay an annual fee
the amount of $3. Restaurateurs were afraid of competition between club cards and credit cards of the establishments themselves, and potential Diners Club customers were scared off by the limited reception network.

However, in the future, the business of the payment system is developing rapidly. By the end of 1950, 20,000 new Yorkers are paying in restaurants with a club card. Over the next three years, the card will be accepted by retail and service companies in Canada, Mexico, Puerto Rico, great Britain, France, and other countries. The club acquires the status of international. Diners Club franchising organizations are opening in the UK, Spain, Brazil and Australia. Since 1961, a more practical material – plastic-has been used in the production of cards instead of cardboard. A new period begins in the history of the payment system and in the history of mankind – the era of plastic money.

The structure of the payment system
At the end of 2004, the international payment system Diners Club unites 73 franchises, its cards are accepted for payment in more than 200 countries. The total trade turnover in 2003 was $29.8 billion. The owner of Diners Club International and its namesake brand is Citigroup Corporation.
unlike other international systems, such as Visa or Eurocard / MasterCard, Diners Club non-Bank payment system. There is no concept of membership in the system. Franchises that are members of the network (in the terminology of the Diners Club payment system) are granted the right to use the trademark and the right to conduct business in a certain territory (usually exclusive). They enter into several agreements with the company Diners Club International and have a number of obligations to it, including serious financial obligations – both fixed and depending on the size of the trade turnover. Franchises pay a fee for the right to participate in the network, the right to use the brand, invest in providing technology at the global level, in the marketing of payment cards.

Franchises build their own international payment system business on the territory entrusted to Them, but they coordinate the solution of key issues with the headquarters of Diners Club International (it is located in Chicago). In accordance with the agreement with DCI, the franchisees are responsible for promoting the brand, selecting business partners, and providing cardholders with the services included in the standard Diners Club service package. Headquarters staff regularly conduct audits of franchise companies.
Just like in other payment systems, Diners Club has developed operational rules and established bodies that coordinate the activities of franchises. These are representative bodies of the IOPC (International Operating Policy Community) and the Global Board, which meet 1-2 times a year to address strategic business development issues.
In addition, the payment system is structurally divided into four global regions – Latin America, North America, EMEA, Asia/Pacific. Accordingly, there are four regional offices of Diners Club. The Russian franchise is managed by the largest structural unit with an office in London – Diners Club EMEA (Europe, middle East and Africa). Franchises annually coordinate their financial and business plans with their regional office.
there are no clear indicators for the industry in the world. At a low level in Diners Club and the volume of disputed transactions (charge back).

Visa International. The essence of the activity
Contrary to popular belief, Visa is not a payment card company. This is an electronic payment system that unites 21 thousand member banks around the world. Banks themselves are directly responsible for issuing and accepting cards. Visa, as a non-profit Association, performs an intermediary role between banks and is engaged in organizing settlements and ensuring technical interaction between system participants. The non-commercial essence of the Association is shown in the fact that the cost of card processing services through the Visa network for banks is determined by the costs that are required for their organization, and any profit received over this is directed to further development of the network and improvement of technology.

Today, Visa is a leading brand and the largest international payment system, which accounts for more than half of the global market for international plastic cards. According to the Visa payment system more than 1.3 billion Visa cards are in circulation all over the world, accepted by more than 20 million retail and service businesses and served by more than 924 thousand ATMs worldwide.

Visa card history
In 1958, Bank of America issued Its own bankamericard. The potential market for the San Francisco-based Bank was the entire state of California, and the card it issued was an immediate success.

By 1965, Bank of America had entered into licensing agreements with a number of banks operating outside of California, which under these agreements obtained the right to issue a BankAmericard. At the same time, a number of other us banks joined forces and created the MasterCharge Association.

These two major banking associations were increasingly successful. Most regional banks soon abandoned their own independent credit card programs, and by 1970, more than 1,400 banks were issuing either BankAmericard or MasterCharge cards.
It was then, in 1970, that Bank of America abandoned the management of the BankAmericard card system,
the system was headed by banks that issued BankAmericard cards. They created the company National BankAmericard Inc. (NBI).

Bank of America continued to grant licenses to issue BankAmericard cards to banks located outside the United States, and by 1972, banks in 15 countries had the right to issue This card
countries, and in 1974, the International Bankcard Company (IBANCO) was established.
However, in many countries outside the United States, there was resistance to issuing Bank of America-related cards, even if it was just a name, so in 1977 the BankAmericard card became known as Visa, while retaining its distinctive blue, white, and gold stripes; NBI was renamed Visa USA, and IBANCO became known as Visa International.