Dear Your Business Credit,
I have heard that merchants should switch over to using EMV technology to accept credit cards. Does it make sense for small businesses to make upgrades now or can I afford to wait a while? -- Confused Retailer
Dear Confused Retailer,
This is an excellent question to be asking. Many small firms are getting hit from all sides by the rising cost of doing business and in some cases, it may be smart to wait a while to move to the new technology.
For the benefit of readers who haven't heard of EMV, it is a set of standards for using a chip-based card payment technology that was trademarked in 1999 by Europay, MasterCard and Visa. They founded a company called EMVCo to introduce such innovations.
The chip-based cards used in EMV are considered to be an improvement over commonly used cards with magnetic stripes when it comes to fraud prevention from lost or stolen cards. As a result, cards that rely on EMV are now widely used in Europe, Canada and other parts of the world.
The U.S. has yet to switch over. Although demand from cardholders who travel internationally has prompted some U.S. financial institutions to begin issuing cards with EMV chips and magnetic stripes, merchants still rely on technology that can only read mag stripes.
One big reason U.S. merchants haven't rushed into converting is that it can be expensive. The cost of conversion for a small business to accept EMV is likely to run between $200 and $600 per terminal, depending on the type of card reader it uses, estimates George Wallner, who was involved with the launch of the first modern mag-stripe point-of-sale terminals and is now chief technologist at mobile-wallet solution provider Loop.
Beyond replacing your swiping device, you may also need to make upgrades to your POS system and train your employees. "This is not a simple formula. Very much depends on the system the retailer has," Wallner says.
However, pressure for businesses to convert is heating up. Issuing banks want to stem rising fraud losses, and consumers are increasingly concerned about the safety of card data, especially in the wake of the Target and Nieman Marcus breaches.
To move things along, card networks such as Visa and MasterCard have started imposing deadlines. Once the target dates have passed, merchants will face responsibility for fraud-related losses if they haven't used EMV technology to prevent them.
Visa, for instance, has imposed a deadline of Oct. 1, 2015 (except for fuel-selling merchants, who have until Oct. 1, 2017). After that, the liability for point-of-sale fraud at terminals that do not support EMV will shift from Visa to the party that doesn't enable chip technology to be used -- that could be the merchant, the acquirer/processor if it hasn't offered an EMV-capable solution to merchants, or the issuer if it has not issued EMV-capable cards to its cardholders.
MasterCard, American Express and Discover all share those 2015 and 2017 deadlines, but each has its own specific rules on liability shift. Verifone has published a chart that summarizes the EMV timetable for merchants.
What this means is that if you don't switch to EMV and someone commits credit card fraud via your point-of-sale system, you could face a charge-back so big, it could put you out of business, according to according to Bob Legters, senior vice president of payment products at FIS, a global provider of banking and payments technology based in Jacksonville, Fla. That risk is a powerful impetus to convert.
"It's time to get off the fence and do it, but you don't have to rush into it and panic," says Legters. "If, by the end of second quarter of this year you're not actively attacking your plan, you're probably going to start to become a laggard."
Of course, the risk of fraud you face depends on your industry, a factor that may influence how fast you make the change. It is also important to keep an eye on how fast issuers release new cards, say experts. You may need to make other investments in your business now that are more urgent.
"There is no point in spending money on terminals if there are not EMV cards and vice versa," says Wallner.
If your interest in EMV is to prevent fraud, you may need to make other upgrades to your system to improve the security of mobile transactions, which are becoming more common, Wallner notes. Near Field Communication (NFC) is supposed to enable retailers to accept mobile payments with the same security as EMV, but retailers have to pay extra to use it, Wallner says.
"A solution like EMV, aimed at the card, certainly does a very good job for the card, but will not cover all of the requirements of retailers in the future," says Wallner.
The upshot? You will probably need to adopt EMV in the near future, but you don't need to bump your plans ahead of any pressing priorities that require your attention in the next couple of months.