Are you ready for the new fraud-fighting credit cards?
The thought of having our credit card information stolen has a lot of us worrying about what’s in our wallets. Credit card issuers and payment processors are even more concerned than we are, since they’re on the hook for a huge share of the tab. And with credit card fraud costs in the U.S. rising to $11 billion in 2013, it’s no surprise they’ve taken bold steps to fight the hackers.
Maybe you’ve already heard about the new “smart” credit cards that contain tiny, powerful chips designed to fight fraud. The technology, known as EMV, is named after the three organizations who spearheaded it: Europay, MasterCard and Visa.
The chip inside an EMV card creates unique information for each credit card transaction, making it much more difficult to steal credit card data to create counterfeit cards. (Most credit card fraud involves a counterfeiting scheme of this kind.)
How the new cards work at point of sale
Consumers who use the chip-enabled cards will not hand them over to the employee putting in the transaction. Instead, they’ll insert the card into a special EMV reader, where it stays until the transaction goes all the way through. Pulling it out of the reader early will automatically end the transaction.
Cardholders will still need to enter a PIN, or in some cases, provide an honest-to-goodness signature on a printed receipt. For example, if the wrong PIN is entered, the transaction will probably be declined, but in some cases a signature line will print on the receipt, requiring the merchant to get a signature before issuing the receipt. Some EMV cards may ask for a signature from the get-go, in which case the card reader will detect this and again prompt the merchant to get one before issuing a receipt.
More protection all around? Only when businesses are EMV-ready
EMV cards can deliver greater security at the point of sale not only for the customer but the business owner, too. But there’s a catch. Many merchants say they can’t afford the new terminals required to process EMV transactions, which can cost up to $1,000 each.
Still, if you’re operating a business and you take credit cards, you can’t afford to go without EMV. Here’s why.
With new rules that take effect in October 2015, fraud may hit you harder than before – because credit card issuers and merchants will share the costs differently. The rules stipulate that when a fraudulent transaction goes through, the liability will go to the party with the lesser technology.
This means that if your restaurant, store or professional practice is EMV-ready, you will be protected in most situations. For example, if a fraudulent transaction involving an old (non-EMV) card manages to get through and you are EMV-compliant, the liability for that sale stays with the credit card issuer. Similarly, if fraud is committed by an EMV cardholder and you’re EMV-compliant, the card issuer is still liable.
But if you DON’T have the ability to process EMV transactions, you will be on the hook for any and all EMV fraud. And if you’ve ever been stung by a even a single big transaction, you know how much it hurts.
Dealing with the cost of upgrading
Fortunately, the credit card issuers have anticipated the problems that companies will face in updating their terminals. Some have programs to make the cost more manageable. If you haven’t already, I recommend that you contact your payment processing company now to find out how to become EMV-compliant.
Want more perspective? Here’s a good article in Entrepreneur Magazine giving 4 key reasons to embrace EMV now.
My goal as your accountant is to help you run your business profitably. If you’d like to talk about EMV or anything else related to your company’s financial health, just give me a call.