2015-02-23 20:05:00 (GMT)
Identity theft and fraudulent transactions have been increasing in the US. Credit card fraud has become such a problem that in a recent Washington Post article, the US was declared “the champion of credit card fraud”. To address this, new legislative changes mandate that banks and merchants issue and accept EMV chip cards in the US by this fall.
What are EMV, aka “chip” cards?
EMV technology is a joint effort between Europay, MasterCard and Visa to have and implement a global standard for security and interoperability of chip-based payment cards. With these cards, a chip is embedded in a credit or debit card, creating an extra layer of security. EMV, aka “chip” cards have been used in Europe and around the world for over a decade now, but haven’t been in frequent use in the US until very recently. Some larger banks have just begun issuing debit and credit cards equipped with EMV chips in recent years.
The migration of fraud and chip cards from abroad to the US
Countries in Europe and abroad made the jump to chip cards several years ago because fraud was more prominent in global markets, and the added security EMV cards offer was needed. As those markets became more secure, fraudulent behavior migrated to less secure markets in the US, as exemplified by the 2013 data breach of Target and the 2014 data breach of Home Depot. Starting October 15, 2015, banks in the US will be required to issue credit and debit cards embedded with EMV chips for extra protection from fraud. Similarly, merchants will be required to use POS systems which accept EMV equipped cards.
Benefits of chip cards for customers and merchants
When being run by merchants at a POS system, rather than swiping the card, chip cards are inserted into a slot in the terminal - “card dipping” - or tapped against the terminal scanner. Card dipping or tapping provides quicker transactions than the traditional card swiping. EMV-compatible POS systems can also operate in offline mode and authorize transactions without relying on communication with the bank’s systems. EMV systems can also support mobile payment services, such as Apple Pay.
In addition to making transactions smoother, chip cards offer higher security. The traditional magnetic stripe on credit cards stores unchanging data. Once someone gains access to this information, they have all the cardholder’s data they need to make fraudulent purchases. EMV chips, on the other hand, create a unique transaction code every time the card is used. This unique code can only be used once, preventing the opportunity for duplication.
The risk of not accepting chip cards
Starting this October, merchants and banks will be held liable for credit card fraud that occurs if they have not met new standards by issuing and accepting EMV cards. For banks, this means they must issue credit and debit cards equipped with EMV chips. For merchants, this means their POS systems must recognize these chip cards.
When credit card fraud occurs, the liability is placed on whomever has the more outdated technology. If a merchant is still using an older POS system that does not recognize EMV cards, that merchant would be held liable for any fraudulent transactions and chargebacks that may occur. This could also mean the merchant is subject to higher costs in a data breach. If, however, the merchant has an updated terminal to support EMV chips, but the bank hasn’t issued the customer a new chip and PIN card, then, in this case, the bank would be liable.
It’s also important to consider that if fraud occurs at a business that hasn’t switched to an EMV-compatible system, that business could be flagged by criminals as an easy target, increasing the likeliness of a data breach.
Making the switch to EMV-compatible POS Systems
Some newer terminals can be upgraded by simply installing add-on devices to the existing POS system, but merchants using older POS systems will likely need to invest in new technology which complies with the new liability rules. Most new systems available on the market today are chip card compatible.
The silver lining for merchants upgrading to a new POS system is that new POS technologies can offer robust tools too, such as transaction history data tracking, customer remarketing, social integration, inventory management and cloud storage. With many merchant services providers on the market today, it’s important that merchants research their options before selecting a new POS system.
EMV chip cards are very different from traditional magnetic stripe cards, so merchants should take time to familiarize themselves with the new systems. If merchants are investing in a new POS system, the process of fully migrating to the new system can take time. Waiting until the late minute to migrate to an EMV-compatible POS system can open merchants up to risk.
Headline: Merchants required to use EMV Cards beginning October 2015