EXPLORING LOCAL BANK COMPLIANCE ON EMV CHIPS

A research
Presented to the Faculty of
Senior High School Siniloan Integrated
National High School

In Partial Fulfillment
Of the Requirements for the
Senior High School Applied Research Course

Amigable Jeremie V.
Avenido Gerald
Bardillon Romeo Jr. M.
Chavez Jay Mark C.
Esquivel Aaron-Cris P.
Magracia Jerlyn O.
2018
 CHAPTER 1

PROBLEM AND ITS BACKGROUND

Introduction

EMV is a global standard for cards equipped with computer chips and the

technology used to authenticate chip-card transactions. card issuers have migrated to

this new technology to protect consumers and reduce the costs of fraud.

When the consumer swipe the card at the checkout, it reads the information and

sends it through a network to have a money from your account to the retailer. The number

is static which implies that it is dependably similar for each exchange, which make easy

for fraudsters to hack the terminal and steal your card information and use it somewhere

else. 2016 counterfeit card fraud is predicted to raise $4.5 billion and up 12.5% from the

previous year. Due to this, this is the last chance for thieves to exploit stolen card because

EMV acceptance finally takes hold.

Some evidences why EMV chips is more secure than a magnetic stripe cards is it

designed to prevent fraud, also, chip cards are really hard to clone because the data on

chip cards is constantly changing, making it hard to isolate, lastly, chip and pin credit

cards have sophisticated encryption.

The card number of all the credit cards we have all used in the Philippines until

now was stored on the magnetic stripe on the back side of the card. When the cardholder

swipe the card at the checkout, the checkout reads the information from that stripe and

will send it through a network to move the money from your account to the retailer.

1
 Bangko Sentral ng Pilipinas required all the banks and financial institutions to

comply and issue the new EMV chip to ATM cards until January 2017. The EMV chip

card era has greater security functions, which include encryption locks and keys to

authenticate the cardboard and the cardholder's transaction, protective card facts from

being compromised. The EMV chips is proven to be effective as it reducing counterfeit

fraud, skimming and other related attacks on the magnetic stripe technology.

Statement of the Problem

Banks have to upgrade their equipment and systems such as ATMs on top of

replacing credit, debit and prepaid cards. It also still need another due date with respect

to everyone, a hard due date. The test is tailor fitting. They haven't generally put that out

yet however in all likelihood there is an external due date after which there will be hard

authorizes. The move to EMV isn't just about putting physical chips. You must be

affirmed. That is why the EMV journey is very complex ( Espenilla Jr ) .

Specifically, it aims to answer the following questions:

1) How banks comply until the given deadline of the BSP?

2) How this EMV Chips differ from Magnetic stripe cards?

3) What are the benefits of EMV Chips?

2
Purpose of the Study

The purpose of this study is to find out how the banks will comply until the given

deadline. The researchers target respondent are the managers of Rural Bank of Mabitac,

Inc., Rural Bank of Pakil Inc. (Siniloan Branch), and Quezon Capital Rural Bank (Siniloan

Branch). The researchers want to know if the banks are ready for the compliance of EMV

chip cards.

Significance of the Study

The study benefits the people with bank accounts and financial security

beneficiaries. EMV is a global security standard for payment transactions that is more

secure than a magnetic- stripe card wherein stored information is static and can be copied

with relative ease and cloned by fraudsters. Given this definition it proves that using EMV

Chips is much secure than a magnetic-stripe. Through this study the researchers

enlighten the minds of the beneficiaries to use EMV cards rather than a magnetic- stripe

card.

Scope and Limitations

This study was focus on the readiness of Rural Bank of Mabitac, Inc., Rural Bank

of Pakil Inc., and Quezon Capital Rural Bank to issue EMV chips on beneficiaries. The

researchers come up with a result that specify if the local banks can handle the situation

and can they finish their job until deadline given by the BSP.

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Theoretical Perspective

Compliance is a type of social influence where an individual does what someone

else wants them to do, following his or her request or suggestion. It is similar

to obedience, but there is no order – only a request. Compliance refers to a change in

behavior that is requested by another person or group; the individual acted in some way

because others asked him or her to do so (Breckler, Olson, and Wiggins, 2006).

"Situations calling for compliance take many forms. These include a friend's plea

for help, sheepishly prefaced by the question "Can you do me a favor?" They also include

the pop-up ads on the Internet designed to lure you into a commercial site and the

salesperson's pitch for business prefaced by the dangerous words "Have I got a deal for

you!" Sometimes the request is up front and direct; what you see is what you get. At other

times, it is part of a subtle and more elaborate manipulation." (Kassin, Fein, & Markus,

2011, p. 271)

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Definition of Terms

ATM. An automated teller machine (ATM) is an electronic banking outlet, which allows

customers to complete basic transactions without the aid of a branch representative or

teller.

CHIP AND PIN. Payment cards that comply with the EMV standard are often called Chip

and PIN or Chip and Signature cards, depending on the authentication methods

employed by the card issuer.

COMPLIANCE. The action or fact of complying with a wish or command.

EMV. EMV stands for “Europay, MasterCard, and Visa,” which are the three companies

that originally developed the specifications for the technology.

FRAUD. Wrongful or criminal deception intended to result in financial or personal gain.

LOCAL BANKS. A local bank is a depository institution that is typically locally owned and

operated. Local banks tend to focus on the needs of the businesses and families where

the bank holds branches and offices.

MAGNETIC STRIPE CARDS. A magnetic stripe card is a type of card capable of storing

data by modifying the magnetism of tiny iron-based magnetic particles on a band

of magnetic material on the card. The magnetic stripe, sometimes called swipe card, is

read by swiping past a magnetic reading head.

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 CHAPTER 2

LITERATURE REVIEW

This chapter highlights the related literature and studies both foreign and local

references all about the researchers’ topic. It also includes the researchers’ point of view

regarding the study of the experiment.

EMV credit cards contain a little PC chip that makes one of a kind code for every

exchange. After the code has been utilized, it can’t be used again. So if a hacker gets

access to this code and attempts to use the data for purchasing, the transaction would be

declined (thebalance.com).

Visa backers began dealing with EMV in 1993 and were later joined by Discover,

JCB, UnionPay and American Express to shape EMVCo. The primary adaptation of EMV

turned out in 1994, in spite of the fact that it took a couple of years before it saw far

reaching use crosswise over Europe. An EMV card is portrayed as a brilliant card, with

an incorporated chip that connects with POS frameworks for confirmation (Olsson, 2017).

Its been almost two years since the nationwide shift to EMV officially began. EMV

is a global standard for cards equipped with computer chips and the technology used to

authenticate chip-card transactions. In the wake of numerous large-scale data breaches

and increasing rates of counterfeit card fraud, U.S. card issuers have migrated to this new

technology to protect consumers and reduce the costs of fraud (Kossman, 2017).

6
 These new and improved cards are being deployed to improve payment security,

making it more difficult for fraudsters to successfully counterfeit cards, it's an improvement

right there (Conroy, 2016).

On the mastercards consumers all used in the US until now, the card number was

stored on the magnetic stripe on the rear of the card. When the consumer swipe the card

at the checkout, it reads your information and sends it through a network to have a money

from your account to the retailer. The number is static which implies that it is dependably

similar for each exchange, which make easy for fraudsters to hack the terminal and steal

your card information and use it somewhere else (Smith-Strickland, 2015).

2016 counterfeit card fraud is predicted to raise $4.5 billion and up 12.5% from the

previous year. Due to this, this is the last chance for thieves to exploit stolen card because

EMV acceptance finally takes hold (Bloomberg, 2016).

Some evidences why EMV chips is more secure than a magnetic stripe cards is it

designed to prevent fraud, also, chip cards are really hard to clone because the data on

chip cards is constantly changing, making it hard to isolate, lastly, chip and pin credit

cards have sophisticated encryption. For merchants and financial institutions, the switch

to EMV means adding new in-store technology and internal processing systems, and

complying with new liability rules. For consumers, it means learning a new payment

processes (square.net).

EMV chip generation is becoming the global trendy for credit card and debit card

payments. This standard has many names worldwide and may also be referred to as:

"chip and PIN" or "chip and signature." (chasepaymentech.com).

7
 While in the Philippines, one of the main issues in financial institutions is fraudulent

credit cards. The card number of all the credit cards we have all used in the Philippines

until now was stored on the magnetic stripe on the back side of the card. When the

cardholder swipe the card at the checkout, the checkout reads the information from that

stripe and will send it through a network to move the money from your account to the

retailer. It’s always the same number for every transaction because that’s number is static

that becomes easy for fraudsters to get the information and use it elsewhere.

For the past years, there have been increasing reports of impending deadline,

along side warnings that if merchants or card issuers did not have EMV technology, they

may be at the hook for the cost of fraudulent use of cards. But, based on how many of

the merchants met that deadline, it looks like the monetary institutions are unaware or

they just ignored it (Armerding, 2015).

Bangko Sentral ng Pilipinas required all the banks and financial institutions to

comply and issue the new EMV chip to ATM cards until January 2017. This is to prevent

fraudulent sports such as skimming and cloning of ATM cards. In 2013 alone, the said

cases of ATM card fraud amounted to PhP220 million which changed into a colossal 78%

growth from 2012. The EMV chip will incorporate the information vital to use the card for

transactions and is covered with the aid of numerous security features (inquirer.net).

The BSP gave the financial institutions three years to migrate and replace credit

cards by EMV chip cards. January 1, 2017 is the deadliest deadline. The magnetic stripe

card is more prove to fraud because it contains cardholders information (Ravalo, 2016).

8
 The EMV chip card era has greater security functions, which include encryption

locks and keys to authenticate the cardboard and the cardholder's transaction, protective

card facts from being compromised (bdo.com).

The EMV chips is proven to be effective as it reducing counterfeit fraud, skimming

and other related attacks on the magnetic stripe technology. Basically, Philippines need

to adopt this technology to reduce counterfeit fraud. The BSP set to adopt the entire

payment network to EMV technology. This is to protect consumer to counterfeit fraud and

uphold consumer protection (pnb.com).

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 CHAPTER 3

METHODOLOGY

This chapter presents the description of the research design, qualitative research

approach, participants, data collection tools research procedures, data analysis and

ethical considerations.

Research Design

A descriptive design involving an interview, as outlined by LoBiondo-Wood and

Haber (2006), is chosen for this study. The interview collected the details of the ideas of

the Managers on the readiness of the local banks to compliance on EMV Chips. The

method of data collection chosen is a guide questions for the interview.

Qualitative Research Approach

The goal of qualitative phenomenological research is to describe a "lived

experience" of a phenomenon. As this is a qualitative analysis of narrative data, methods

to analyze its data must be quite different from more traditional or quantitative methods

of research. Essentially, you are focused on meaning, the meaning of the experience,

behavior and narrative. The researchers are focus on the experience of the bank

managers on today’s phenomenon which is the bank compliance on EMV chips. In this

research, the goal is to describe the progress in complying of the banks to EMV chips

and to know if they are ready.

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Participants

The researchers’ respondents was composed of the Bank managers of Rural Bank

of Mabitac, Inc., Turumba Rural Bank of Pakil Inc., and Quezon Capital Rural Bank in

Siniloan, Laguna. The researchers interviewed them about what the bank has done in

accomplishing the project within the time frame.

Data Collection Tools

The researchers made a guide questions that was used to individual interview to

the Bank managers. The data recorded in a wide variety of ways including, audio

recording, and written notes. In interviews there is a guide questions and one or more

interviewees. The purpose of the interview is to prove the ideas of the interviewees about

the phenomenon of interest.

Research Procedures

The data of the researchers was gathered in three personal interviews on the bank

managers of local banks. The researchers made guide questions that they will ask during

the interview. The researchers asked their personal identities then asked the questions

about the compliance of local banks in EMV chips.

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Data Analysis

To determine the bank compliance on EMV chips, the researchers used a

purposive non-random sampling technique through individual interview. They conducted

an interview in each given local banks and determine the progress on complying EMV

chips. In a narrative, consider aspects such as the physical surroundings, the objects, the

characters or aspects of the characters, the social interactions between the different

characters or groups, the type of activity, the outcome, the descriptive elements and the

time reference.

Ethical Considerations

The primary goal of this research is to present truths about the compliance of local

banks to EMV Chips. The researcher will also protect the privacy of the research

participants and get full consent from them prior to the study.

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 CHAPTER 4

FINDINGS

This chapter discusses the finding of the study and analysis of data gathered from

the respondents. The data are presented and interpreted in sequence raised in the study.

The purpose of this study is to find out how the local banks will comply until the

given deadline of the BSP to issue EMV chip cards.

Demographic Profile of the Participants

The participants are two female and one male. The age range is 25-40 years old.

First, the manager of QCRB. His name is Ermelo Quimpol, he is 38 years old and he was

6 years manager of QCRB . Second, the manager of Rural Bank of Mabitac. His name is

Abnor Luwelu C. Cajano, he is 38 years old and a college graduate. Last, the OIC (Officer

in Charge) of Rural Bank of Pangil. Her name is Margie S. Pelagio, she is 26 years old

and she was 4 years OIC of Rural Bank of Pangil.

The research answer the following questions including how banks comply to the

given deadline of the BSP, how this EMV Chips differ from Magnetic stripe cards, and

what are the benefits of EMV Chips.

As the researchers ask the managers and OIC about their knowledge on EMV

they gave different perceptions, “Ang EMV ay mas secure na uri ng ATM”, the manager

of QCRB said, “Ahh yang EMV bago yan eh, iwas hack”, the OIC of Rural Bank of Mabitac

13
said, “EMV parehas lang sila ng dati nating ATM pero may nadagdag”, the manager of

Rural Bank of Mabitac said.

The research found that the bank of QCRB is ready for the issuing of EMV chip

cards since last year. “Naglagay kami ng tarpaulin at notice sa tapat ng banko naming na

nagpapa-alala tungkol dun sa EMV.” the manager said. “Mas safe yang EMV kasi may

chip na idinagdag dyan”, he also said. The Rural Bank of Mabitac is not ready for issuing

EMV chip, “Ang priority kasi ng BSP ay yung mga commercial banks” the manager said.

The Rural Bank of Pakil is also not yet ready with the same reason “Mga commercial

banks ang inuuna nila, tapos kami naman, siguro sa 2020 mag-iissue na kami”.

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 CHAPTER 5

DISCUSSION

The purpose of this study is to find out how the local banks will comply until the

given deadline of the BSP to issue EMV chip cards.

Summary of Findings

The researcher studied about how the local banks are preparing for the issuing of

EMV chip cards. To do that they need to get the needed data from the managers or OIC

of the three local banks QCRB, Rural Bank of Mabitac and Rural Bank of Pangil all is

Siniloan Branch. The researcher interviewed the participants and recorded their answers

through voice recording and written notes.

Based on the interpreted data, most commercial banks are ready for issuing EMV

chip cards than rural banks. The reason for this is the BSP wants to finish all commercial

banks such as PNB and Landbank because this banks can be located through out the

whole nation. While Rural Banks seeing their banks issuing EMV chip cards on 2020.

It was found that the bank of QCRB is ready for the issuing of EMV chip cards

since last year. The Rural Bank of Mabitac is not ready for issuing EMV chip and the Rural

Bank of Pakil is also not yet ready with the same reason “Mga commercial banks ang

inuuna nila, tapos kami naman, siguro sa 2020 mag-iissue na kami”.

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Conclusions

The researchers conclude that the commercial banks first to issue EMV chip cards,

while the non-commercial banks are not yet ready because they are not prioritize by the

BSP. If they already make this and adopt this new technology before, the Philippines will

decrease the fraudulent cards rate. On 2016 the Philippines have a total of half a billion

pesos lost from fraudulent credit card transactions. This is the problem that BSP wants to

solve and they are now forcing the local banks to produce EMV credit cards for much

security.

Recommendations

The researchers suggest that local banks should now working for the creation of

EMV chips to survive before the deadline and prevent penalties. They could use their

experience and with the help of BSP they can finish it at the given time. This study is very

important especially to the beneficiaries because they will know if the local banks can

comply and give the service they should get.

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