Attention small business owners: An important deadline is approaching in the transition to EMV debit and credit cards in the United States.
Starting October 1, liability for fraudulent transactions will shift to the party that did not enable the chip-to-chip (EMV) transaction. In other words – later this year. if your business has not yet installed an EMV terminal at your point of sale, you will become responsible for any fraudulent transactions on counterfeit EMV cards.
Before we get into the details of this liability shift, let’s take a closer look at EMV cards and how they work.
What are EMV cards?
You have probably heard about EMV “chipped” credit and debit cards, and you may even have one or several of them yourself.
The cards are designed with a built-in microprocessor chip that electronically scrambles the account information wherever the card is used. Each transaction produces a unique code. As a result, if data thieves were to steal the credit card information, it would be useless to them because the line of information they receive from the transaction would be invalid when they try to use it.
This more secure method of payment has been the standard in Europe and other countries for many years now and – in the light of major retail point-of-sale data breaches– is now being introduced in the U.S.
Some card issuers have already started rolling out EMV cards to customers and many estimate by year end 2015, 40 percent of debit cards and 70 percent of credit cards will have chips in them.
Update your card reader
While there is no mandate from the card issuers to be EMV-compliant, you should plan to switch to an EMV terminal no later than October 2015. That’s because starting Oct. 1, liability in certain circumstances of fraud will fall to merchants who do not implement EMV technology.
EMV terminals will still be able to read magnetic stripe cards, and when those types of cards are used in the case of fraud, the liability remains with the issuer, and not the merchant.
It’s important to remember that although there is a cost involved with installing new card readers, the potential costs associated with fraudulent transactions could far outweigh the initial investment needed for a new terminal.
Additionally, as consumers begin better understanding the enhanced security aspects of EMV cards they may view businesses that are still using traditional magnetic stripe readers as less secure.
If you’ve got questions about the upcoming transition to EMV cards, please don’t hesitate to reach out to your local MidWestOne business banker.