Well behind the rest of the world, the United States is moving to a new chip technology in credit cards. The new technology—EMV—has been in use in Europe and the rest of the world for some time and the EMV technology is now being introduced in the United States in an attempt to combat credit card fraud.
The technology is fairly simple to explain. An encrypted microchip in embedded in your plastic credit card. The credit card retains the magnetic strip for merchants who do not have the reader necessary to read the EMV cards. When the EMV card is used the reader reads the microchip. The microchip uses a different coded number for each transaction where the card is scanned, making it much more difficult to forge the card.
Nearly 600 million credit cards are expected to be issued this year, but only 10 percent of merchants currently have terminals that accept EMV chips. So, how do the credit card issuers get merchants to buy the new readers required to read the EMV cards? They do that by changing the liability standards for accepting forged cards. Today, if a merchant accepts a forged card the issuer assumes the risk. On October 1, 2015, things change.
Starting on October 1, 2015 if a merchant is presented with a chip card but is unable to process the chip (but can still read the magnetic stripe), the MERCHANT is liable for the fraud loss if the card happens to be fraudulent. If the merchant is presented with a stripe-only card, the card ISSUER is liable for the loss if the card is fraudulent. If the merchant is presented with an EMV equipped card, and the merchant has an EMV equipped reader, the ISSUER remains liable if the card is fraudulent.
This shift in liability is supposed to encourage issuers to issue EMV equipped cards and to encourage merchants to change their credit card readers to accept EMV equipped cards. It is almost certain that the issuers will supply their card holders with EMV equipped cards and it will be the merchants who are at risk by not upgrading their readers to accommodate EMV equipped cards.
So, what is a merchant to do? First, determine the cost of upgrading your readers to read EMV equipped cards. If you cannot afford to upgrade your readers, if the customer presents a stripe-only card, you can accept the card since the issuer retains the liability of the card is fraudulent. If the customer presents an EMV equipped card, then you have to determine whether you should require the customer to produce a photo ID to accept their cards. If you operate a convenience store where your gas customers do not come into the store, you need to replace the readers to read EMV cards or your business assumes the risk of loss. While new technology is expensive, the cost of not complying may be more expensive.
For businesses where credit card transactions are not a major part of the business, and where you know your customer (such as a dental or medical office where your patients can pay by credit card), the chance of loss is fairly low, so upgrading may not make economic sense. Businesses where credit cards are used frequently, such as restaurants, convenience stores, grocery stores and where your employees may not know the customer, then upgrading to EMV equipped card readers is essential.
A final word about the change in liability for fraudulently produced cards. The new rules apply only to situations where the card is presented for payment. So if you sell over the Internet or accept cards by phone or mail, the liability of the issuer does not change.
To read more about EMV cards, go to GoChipCard.com. If you have questions about EMV cards and the change in liability, please contact Rick Reier or Trev Peterson at (402) 475-7011.
Trev Peterson
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