EMV technology is a chip technology embedded into credit cards that has been slowly being implemented in the credit and debit cards provided by major card companies. This chip technology is becoming the global standard for credit and debit card payments. This evolution toward chip technology increases the security of the card, and therefore is intended to decrease the consumer’s risk, and also the liability of the card companies, of fraudulent charges made with their card. The card industry has begun the shift towards the chip technology because the older technology of the magnetic stripe cards is less secure, and more vulnerable to be easily copied via skimming techniques by criminals.
What does all of this mean to retailers? Added cost, and added potential exposure to the responsibility of fraudulent charges. Older card readers that many retailers still have in place do not support the chip reader technology, and only read the “more risky” magstripe cards. In order for retailers to utilize the enhanced security of the chip technologies in newer cards, they have to invest in the proper EMV card readers, which can represent a cost that small and medium sized businesses do not want to deal with.
On the other hand, if the retailers do not invest in card readers that can read the cards with EMV technology, then the liability of fraudulent charges shifts from the card company to the retailer. Historically, card companies, not the consumer nor the retailer, have born the risk for fraudulent charges made by a criminal. Therefore, to minimize the liability of fraudulent charges, the card companies have been implementing the chip technology. The large card companies (Visa, MasterCard, Discover, and American Express) have announced that on October 1, 2015, a liability shift will occur on fraudulent charges. If the retailer does not have the proper equipment to accept a consumer’s card with chip technology, it is our understanding that the liability of the fraudulent charge is passed back to the retailer and not born by the card company. This change could warrant a discussion between the retailer and its attorney to determine the impact and potential exposure.
Bottom line, the cost of doing business is increasing for retailers, either by investing in updated card readers, or by making an informed decision to not invest in updated readers and therefore bearing the risk for fraudulent charges made with EMV cards. Retailers will have to make an informed decision as to if/when they will comply with the new EMV standards. Equipment upgrades have the potential to be both costly and time consuming, and a burden that some small and medium sized businesses would like to not deal with. Therefore, these businesses will need to take a hard look of this decision and do a cost/benefit analysis of the benefits of complying with this technology. Fraud prevention, and the decreased “liability shift” that a retailer would experience, may not alone provide enough benefit for smaller or medium sized business to comply immediately.
If you would like additional information, please contact your Somerset advisor today!