The nationwide switch from magnetic stripe credit cards to EMV chip cards is well underway. Is your business ready?
If not, you’re leaving your customers more susceptible to fraud and your company wide open to some serious liability. If you don’t swap your swipe-and-sign card reader out for an EMV card reader by Oct. 1 of this year, the so-called “liability shift” deadline, you could have to eat the potentially crippling costs and chargebacks associated with fraudulent transactions, not your payments processor. How’s that for motivation?
To get you prepared for the transition to EMV, here are eight essential questions to ask:
1. What are EMV cards anyway and what makes them safer?
EMV (short for Europay, MasterCard, Visa) cards are basically the same as your standard magnetic stripe “swipe-and-sign” cards, only they’re more secure, says Stephanie Ericksen, global risks products vice president at Visa.
The added security is packed into a small, “smart” microprocessor computer chip embedded in the card. The metallic microchip, which Visa claims is “nearly impossible” to counterfeit, stores and safeguards private cardholder data. Every time the card is used, the chip generates a unique, one-time authentication cryptogram signature that proponents of the technology say is incredibly difficult to duplicate.
“It’s quite difficult to clone the chip,” says Eric Dunn, senior vice president of payments and commerce solutions at Intuit. “It’s not that hard, unfortunately, to clone a magnetic stripe card, so this means bad guys who try to earn a nefarious living by skimming magnetic card numbers and recreating magnetic stripe cards can’t do that when the world migrates to EMV chip cards.”
While EMV chip technology is widely viewed as virtually impossible to counterfeit, some security experts claim it leaves cardholder data vulnerable when inserted into readers, when collected into merchants' information systems and when dispatched to payment processors, reports Reuters. Chip cards also do not offer any additional protection against e-commerce (online purchase) fraud, as cardholders’ names, card numbers and card expiration dates are printed on them, just as they are on magnetic stripe-only cards.
2. What does “liability shift” mean?
“Liability shift” is the term banks and payment processors are calling the Oct. 1, 2015, deadline to switch to EMV. “It’s named as such because it denotes a change regarding who pays when certain bad thing happen,” Dunn says.
Right now, if you process a fraudulent card, the card issuer absorbs the cost, whether it be Bank of America, Chase, Capital One, etc. After the “liability shift” hits, if someone pays with a fraudulent chip card and you haven’t upgraded to an EMV reader yet, the liability falls on you. The card issuer is off the hook.
For example, if a fraudster purchases $1,000 worth of printer jet ink from an office supply store with a counterfeit EMV chip card, and the store doesn’t have an EMV chip card reader to run the transaction, only the old magnetic swipe-and-sign system, the store will be responsible for the $1,000.
3. What will a new EMV card reader cost me?
The price depends on the provider and the number of bells and whistles included. Intuit, for example, is selling a basic, cost-effective $30 EMV reader that plugs into mobile devices. Meanwhile, companies like Chase Paymentech, First Data, Ingenico, Hypercom and Verifone are offering full-sized, more fully featured Wi-Fi countertop chip terminals ranging from $150 to $300.
Square, for its part, is currently giving away 250,000 wireless EMV card reading devices for free on a first-come-first-serve basis, a spokesperson for the company tells Entrepreneur. The card deck-sized portable reader, which wirelessly connects to smartphones, tablets and Square Stand, also processes contactless NFC (near field communications) transactions, like Apple Pay and Google Wallet payments. Square’s free mobile EMV readers are slated to ship this fall.
Ericksen advises that you shop around for the best EMV card reader deal, just as you would if you were looking to upgrade your cellphone. “Now is a good time to see if you can’t get a payment system that’s even cheaper and better than what you had before,” she says.
4. What’s in it for me? Why should I take the time and money to switch?
First and foremost, transitioning to EMV will protect your customers from fraud. It will also safeguard you from being liable for any counterfeit fraud that your customers should fall victim to when paying with EMV cards at your establishment.
Second, your customers will come to expect EMV terminals at places of business. “More and more will be coming in with EMV chip cards and they’ll understand that using them is more secure for them,” says Ericksen.
And third, because most EMV chip terminals also accept NFC based mobile payments, like Apple Pay and Google Wallet, you’ll be able to accommodate customers who want to pay for purchases using the latest payment tech innovations.
5. How will the new EMV chip cards be read?
Some payment processors are playfully calling the method the “chip-and-dip.” It’s simple. Instead of swiping cards like they used to, customers will insert or “dip” their cards into a receptacle slot within the EMV card reader. Chip cards are then held in place in the reader for the duration of the sale while the reader and the chip inside the EMV card communicate back and forth. Once a customer removes an EMV card from the terminal, they can either sign for the transaction or enter their PIN number, if necessary.
6. Is the switch voluntary?
Yes, it absolutely is. No one is going to twist your arm or force you to change, neither your existing payment processor nor your card issuer, nor your bank or credit union. It’s entirely up to you to switch to EMV on your own. If you haven’t already, Ericksen says you will likely receive information “very soon” from your existing payment processor or bank encouraging you to make the switch, likely along with a list of their EMV reader products and prices.
Intuit, for example, has already emailed a large number of its QuickBooks customers, Dunn says, informing them of the upcoming “liability shift” deadline and announcing the company’s new EMV reader.
You can either upgrade to EMV through your existing payment processor or bank, or from a competing vendor. Additionally, Costco and other similar warehouse-style clubs offer cost-effective EMV reader options, Ericksen points out.
If you don’t make the switch, you will not be fined or suffer any type of financial slap on the wrist from the banks and payment processors, outside of fraud liability, that is.
7. How long will the switch to EMV take?
Ericksen expects the transition to EMV to be long and gradual. “It will take a couple of years to get to higher and higher levels of EMV implementation, as we’ve seen from other markets.” She’s referring to markets where merchants have already embraced EMV cards, 80-plus countries including Western Europe, Mexico and Canada, some for up to 15 years already.
Visa estimates that there are approximately 181,000 EMV chip merchant locations in the U.S. already and more than half of the EMV transactions the company is seeing come from small businesses, Ericksen says. By the end of this year, Visa projects that 47 percent of the merchant card reading terminals in the U.S. will be upgraded to EMV chip technology. Roughly slightly more than 10 percent of Visa cards in circulation today have chips embedded in them, about 78 million in all.
Meanwhile, most U.S. banks are still in the process of issuing EMV cards to their customers. If you don’t have one now, you likely will soon, likely sometime in the next three or four months, Dunn estimates. The Payment Security Task Force expects that about 63 percent of all of the major payment cards in the U.S. -- Visa, MasterCard, American Express and Discover -- will be converted to chip by the end of this calendar year.
8. Will I still be able to process transactions for customers who don’t yet have EMV cards?
Yes, new EMV card processing machines are equipped to accept the old, magnetic stripe-only cards, as the majority of Americans are still waiting to receive EMV chip cards from their banking and other financial institutions. On the flip side, in addition to embedded chips, the new EMV cards are also equipped with magnetic stripes so they can still be used in magnetic stripe-only terminals.