Credit and debit cards are changing – and all businesses who accept them will feel the impact. Are you ready?
Starting in October 2015, all major card brands – MasterCard, Visa, American Express, and Discover – will implement a liability shift for point-of-sale terminals. This means that a merchant operating a point-of-sale terminal that does not support EMV – the Europay MasterCard Visa technical standard for smart payment cards – will be liable for fraudulent transactions.
Why the Shift?
In 2013, the cost of payment fraud in the United States totaled $7.1 billion. The entire rest of the world totaled $6.8 billion. Besides record-breaking breaches in 2013, the U.S. had not yet adopted EMV, a technology widely used everywhere else- making U.S. businesses an easy target for hackers.
EMV works using advanced technology to securely store data on the card and by creating a one-time use code for each transaction, reducing the likelihood of fraud in a card present transaction. There are three requirements for an EMV transaction – an EMV chip card, an EMV-compliant terminal, and a payment processor capable of securely handling an EMV transaction.
How is it Different?
The current magnetic stripe card, used by the public for almost 50 years, is based on 1950’s magnetic recording technology. In a simple transaction, the card is swiped through a terminal, with the static data on the card quickly read by the terminal.
EMV chip cards have data embedded into the card – under a computer chip – that is read and updated when the card is in inserted into a terminal capable of accepting the card.
This means shoppers will no longer simply swipe their cards; EMV cards may be contact or contactless. In a contact transaction the card will be inserted into a card reader until the transaction approval is completed. This may involve entering a PIN, or having a customer sign the charge slip. A common practice with debit cards, entering a PIN is a stronger control than signing and will likely be added as a credit card transaction requirement as well. Chip-based cards can also support contactless card reading, where instead of swiping or dipping, cards are tapped or waved against a terminal scanner that can pick up the data from the embedded chip.
Because the chip-based card contains a cryptogram for processing, it will securely combine existing information about the cardholder and certain processing requirements, along with transaction information from the terminal to create “rules.” These rules must be approved by the terminal and then verified by the issuing bank before the card is accepted.
With this more secure processing, plus a transaction counter on the card that will be updated during each transaction, the processing and the data on the card will be dynamic, making it very difficult to counterfeit the card. However, as the U.S continues to transition to chip cards, the new cards will still have magnetic stripe data on the back, enabling acceptance by merchants not yet having EMV-capable terminals.
How Will Liability Change?
The liability for credit card fraud will be shifting – and it may be shifting to you. Today, the issuer of credit cards usually absorbs the cost of credit card fraud.
However, beginning October 1, 2015, the liability for any card fraud will shift to the least EMV compliant party (the card issuer, the card processor, or the merchant). If a merchant doesn’t accept chip-based cards, then they are potentially liable for the loss.
How Great is the Liability Risk?
Merchants with non EMV-capable terminals will be greater targets for card-related fraud, and the liability for counterfeit fraud could be borne by them. They also risk an increase in the interchange rate at some time in the future and may possibly incur additional charges if their lack of preparedness causes a data breach.
It’s possible for merchants with EMV-capable terminals to still be at risk because of the backward-compatibility feature of the terminals. To support the continued existence of old magnetic stripe cards for the next few years, the new terminals must still be able to read them.
Card fraud using a combination of new terminals and old cards may still be possible until old cards are no longer accepted by the merchant. However, while the backward-compatibility feature may enable fraud, EMV-capable merchants will not be liable because they have taken the steps to become EMV compliant.
Potential Fraud Aside, What Else Can Retailers Expect?
New cards and a new POS system may cause slightly longer checkout times because the chip based card will take a little more time for processing than a simple swipe. Customers may need to be trained to insert the card into the terminal and leave it there while the transaction processes. If they remove the card before the transaction is approved, there will be a processing error and the transaction will need to start again.
Some individuals may leave the store with the card still in the terminal since, unlike the magnetic stripe card; the card will be leaving the customer’s hand, potentially making it easier to forget. Retailers will need to train employees to use the new equipment and to help shoppers as needed.
Training employees, replacing point-of-sale terminals, and upgrading systems will come with a cost to merchants; however, the exact price tag will vary. The cost of new EMV-capable terminals ranges from a few hundred to over $1000 per terminal.
There is an additional benefit to merchants who install EMV terminals. If 75% of their card transactions originate from EMV terminals, they will be exempt from the PCI Data Security Standard validation requirements each year. Merchants must still maintain PCI compliance; they just won’t have to go through the annual validation steps.
What Should Retailers Do Now?
The October deadline is fast approaching, so if you haven’t already, we recommend a discussion with us at NMS US to evaluate your systems and associated costs. Besides EMV compliance, it makes good business sense to review what you are paying in processing fees annually.
Our professionals at NMS US can assist you in reviewing your credit card processing fees and can provide cost savings analysis at no cost. Please contact us for any questions regarding the EMV liability shift or if there is anything we can do to serve you.
We’re Passionate About Your Success
Unlike a lot of credit card processors, we care about your unique business. We want to keep you EMV compliant, because when you succeed, we succeed. NMS US is affiliated with a Native American owned company and the world’s largest credit card processor. Because of these long term relationships, we are able to offer you the lowest credit card payment rates in the industry.
In fact, if you can find lower credit card processing rates, NMS US will pay you $1,000 — that’s our guarantee.
When you partner with NMS US, you’ll benefit from:
- Fast and secure remote credit card processing, telephone credit card processing and point of sale processing
- Cutting-edge pin pads, processing terminals and check readers, including a complimentary, EMV compliant credit card terminal to any merchant with more than $10,000 in monthly transactions
- The ability to accept all credit and debit cards, including Visa, Mastercard, Diner’s Club and Discover
- American Express® OptBlue™, a brand new option that’s perfect for small business owners
- Instant check approval through Telecheck
- The latest industry technology that streamlines transactions while improving cybersecurity
- Unparalleled customer service that is solution-driven and focused on your success
- MERCHANT SHARE, our referral program that allows you to make a residual income.