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How Chip Cards / EMV are Effecting Your Business

In this short white paper, I am going to provide you with five facts about EMV or Chip and Pin cards that will have a dramatic effect on electronic payment processing in the U.S. market.  I hope you find these facts useful!

EMV or “Smart Chip Cards” represent by far the biggest and most immediate payment processing change affecting businesses in the United States.  Unfortunately, this change has not been communicated effectively.  If you have been told anything about smart chip cards, it has probably been a scare tactic from a merchant services sales rep about new regulations or liability.  Here are five facts about EMV or Chip Cards and how these facts affect your business.

Fact #1 – By February 1st, 2016, the vast majority of U.S. consumers will use an EMV smart chip card.  Consumers have become more and more nervous about electronic forms of payment in the U.S. as fraud is on the rise and major retailers like Target experience well publicized data breaches.  EMV (which stands for Europay, Mastercard, Visa) is an attempt by these card brands to reduce fraud. 

In a recent survey by Mastercard, three out of four consumers said they expect to use a chip card in the stores where they currently shop.  73% of consumers agreed that chip card technology will be more secure than the magnetic stripe which is so often cloned or copied by thieves.  Consumer awareness about chip card technology is growing, and they recognize the risks in using the magnetic stripe.

Fact #2 – Chip cards run differently than traditional magnetic stripe cards.  Many merchants believe they have an EMV or Chip Card compliant terminal when, in fact, they are not ready to accept these card types.  Let me explain how this technology works.  If your terminal is set up correctly, when you attempt to swipe a smart chip card, the terminal will prompt you to insert the card rather than swipe it.  If this is not already happening multiple times per day, you can be sure that you are not set up with an EMV ready terminal.  Keep in mind that many terminals are EMV “capable” but have not had the correct software upgrades to take these new forms of payment.

Fact #3 – The cost of processing Chip Cards will be less than standard card types.  The majority of the fees you pay to process payments come from “Interchange Fees.”  These are set by Visa and Mastercard and charged by the consumer’s bank.  The rationale for the fees is to generate a profit for the bank and cover the costs of fraud prevention.  America has one of the highest Interchange Costs in the world.  One reason for the higher fees has been the lack of EMV card implementation.  Now that EMV cards will be in the hands of consumers, the costs of processing these card types should decline significantly over time.

Fact #4 – By NOT accepting EMV cards, you open yourself up to three new costs.  

The first cost will be fraud.  As EMV moves forward, banks will become less and less interested in protecting consumers using magnetic stripe cards, and thieves will continue targeting stripe card transactions.

The second cost will be liability.  Let’s say a thief got a card number, expiration date, and other data for a card user and copied the credit card using the magnetic stripe.  If your business accepted that card and allowed the thief to spend $100 in your store, you would be liable for that $100.  Here’s why:  If you had an EMV terminal up and running correctly, the terminal would have recognized that this was an EMV Chip Card.  It would have prompted the consumer to insert the card.  The thief doesn’t have the ability to copy the chip technology, so this $100 transaction would not have happened. 

The third cost will be higher interchange.  I mentioned this in the last fact, but it warrants repeating here.  I believe in the very near future transactions processed using magnetic stripe technology when they are EMV capable will be subject to what the banks call a “Downgrade.”  A downgrade is simply a higher interchange fee.

Fact #5 – Getting set up for EMV is very simple and free!  We offer our clients a free, loaner terminal that is EMV ready out of the box.  These new terminals are not only ready to accept new forms of payment like chip cards, they also have a smaller footprint on your counter and run much faster than the older models.  These new terminals will improve the experience of your employees and customers alike.

Michael Whitlock