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EMV Compliance: Is Your Business Prepared for the October 1st Deadline?

August 18, 2015

Enhanced security liability shift goes into effect October 1st.

The U.S. Small Business Administration (SBA) estimates that payment card fraud will cost businesses around $10 billion in 2015, further increasing the need for business to adopt new ways of keeping your data safe.

A modern “chip” technology called Europay, MasterCard and Visa (EMV), the three companies who have created this standard, is a more proactive method of combating fraud. Many major U.S. card companies including MasterCard, Discover, Visa, and American Express have mandated a liability shift for certain payment card transactions, which will go into effect October 1st 2015.

What is a liability shift?

On October 1, 2015, the liability for counterfeit in-store payment card transactions generally shifts to the party (either the issuer or merchant) that doesn’t support EMV. For years, the use of a magnetic credit and debit cards have been used by merchants. The magnetic strip technology stores static information which is easy for criminals to hack. Stealing information from a magnetic credit card allows a hacker to copy the data and make purchases or withdraw cash on a cloned card. The new EMV system was developed to help fight this type of payment card fraud.

EMV cards at a glance:

  • Contain a chip that acts as a miniature computer.
  • Generate an original encrypted code for every transaction which ensures more security overall.

Card issuers like banks, credit unions, and other financial institutions that distribute payment cards typically held all liability for counterfeit card transactions in the past. Now the liability shifts to the party that does not support EMV- either the issuer or the merchant. If a customer pays with a chip card using a merchant’s magnetic-only card reader, the merchant, not the issuer, will be responsible for replacing lost funds if the transaction is fraudulent. Luckily during the transition period, most new cards will be equipped with both chip and magnetic strip technology to make it easier for businesses to accommodate.

Pros and Cons

Though the system has been proven to effectively prevent credit card fraud for many businesses, the EMV system also:

  • Costs more than magnetic strip technology- Chip cards are more costly to manufacture, which is the major downside to the EMV system. In order to be EMV compliant by the October 1st deadline, banks will have to reissue thousands of chip cards before their expiration dates. Financial institutions might be forced to upgrade their ATMs to be EMV friendly as well, which is another added expense.
  • Takes longer to process than magnetic strip technology- Chip cards aren’t swiped like magnetic strip cards, rather they are dipped into a card reader which takes about 10 seconds to go through (shouldn’t be a huge deal but, nonetheless, it is less instant than swiping your card)

Future of EMV

The EMV system is merely the first part of this liability shift that is aiming to eliminate credit card fraud. The next step is likely a mobile payment system, which uses a contactless near field communication (NFC) mobile wallet. This technology requires only a tap on a consumer’s smart phone, and is likely to be faster and more secure than both magnetic and chip cards.

The U.S. Small Business Administration (SBA) estimates that by the end of 2015, approximately 40% of U.S. credit and debit cards will contain EMV chips, further helping to reduce payment card fraud rates.

Questions? Contact us.

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