Essentially, Mastercard, Visa, American Express and the like have had it with old-technology magnetic-stripe cards, which are easy plunder for fraudsters, so they’ve decided to shift the fraud liability to businesses that insist on mag-stripe technology and don’t bring in new chip card terminals. Thus, if a fraudster comes into your non-chip-card-ready business after October 1 and charges a part—or more—on a credit card, your business eats the loss.

All of it. Problem is, thousands of U.S. businesses have no idea that they’re on a collision course with fraud liability this fall. And credit card companies are starting to get worried.

“While the credit card industry needs to churn out a lot more chip cards, retailers seem to be in worse shape,” said Matt Schulz, a senior industry analyst at
CreditCards.com. “Very few are ready to accept chip cards.”

Indeed. According to a February 2015 poll by Newtek Business Services, 71% of business owners are unaware that they’ll be on the hook for magnetic stripe fraud after October 2015.

“It is apparent that business owners still do not have a full understanding of the importance of chip card processing,” said Barry Sloane, CEO of Newtek. “It is extremely important for individuals taking credit card payments to be aware.”

Despite the backlash anticipated from businesses that begin getting stung for fraud this fall, the major credit card companies are hanging tough with their deadline. And it’s no wonder. All of those credit goliaths have been burned by the wholesale theft of credit card data that is often measured in millions of accounts. And all of those titans have been dealing with untold numbers of angry cardholders—many of whom know all too well that the security on a mag-stripe credit card is a joke.

Chip cards, by comparison, are much more secure, according to Megan Shamas, a spokesperson for EMV-Connection, a branch of the Smart Card Alliance. Specifically, chip cards produce a one-time-use code for every transaction, making it much more difficult for fraudsters to compromise. Plus, if a chip card is lost or stolen, the card is also much more difficult to counterfeit, Shamas said.

Chip cards—also known as EMV cards, an acronym for Europay, Mastercard and Visa, the three companies that helped develop the card technology—also have an extremely successful track record in Europe. Credit card fraud in the United Kingdom plummeted by 72% after chip cards were widely adopted, according to Patricia Moloney Figliola, a specialist in Internet and telecommunications policy with The Congressional Research Service, a research team employed by the U.S. Congress. And Canada saw a 48% reduction in fraud after chip cards were rolled out there, Figliola said.

In fact, according to Figliola, the United States is the last major market to make the switch to chip cards.

	Chip cards produce a one-time-use code for every transaction, making it much more difficult for fraudsters to compromise.

Besides intense pressure from credit card companies on chip card migration, fed-up consumers are also beating the drum. A recent Mastercard study revealed that 63% of credit card holders want a chip card “immediately,” said Carolyn Balfany, group head of U.S. product delivery for Mastercard. And 87% of those surveyed said that they were completely comfortable with the idea of transitioning to chip cards.

Of course, the rub for auto-parts businesses is that getting from here to there will cost coin. Phil Wimberly, vice president of integrated solutions sales for OpenEdge, a payments software provider, said that companies can expect to pay $300 to $1,300 for a new chip card terminal, depending on the features they’re looking for. Plus, they’ll have to train staff to deal with the new technology.

One of the best resources for the new terminals will probably be the business that’s already handling the processing of your mag-stripe cards, Wimberly said. The silver lining is that customers will most likely find making the switch fairly intuitive, though there are a few differences.

Chip cards need to be inserted into a terminal rather than swiped. And a chip card needs to stay inserted in the terminal until the transaction is completed. For verification, chip cards will require either a customer signature or a customer PIN. And some will be “contactless,” requiring only a simple “wave” over a terminal to initiate a transaction.

During the first few years of the transition, chip cards will also come with magnetic stripes, which will enable consumers to make purchases at businesses still mired in mag-stripe technology. But the primary point to remember is that you won’t be on the hook for fraud created by any mag-stripe card you accept as payment as long as your business has chip card terminals, according to EMV-Connection’s Shamas. As long as your business has made the effort to accept chip cards, the credit card companies aren’t looking to penalize you for accepting a mag-strip card, she said.

As the October deadline looms, all of the major credit card companies are ramping up massive business educational campaigns, hoping to help businesses dodge the fraud-liability ax. But even with the massive PR push, industry watchers fret that there will still be hundreds of thousands of uniformed businesses seeing red over new fraud liability this fall.

“The Achilles heel for EMV merchant adoption will be small and micro merchants that are not only unprepared for EMV but are even unaware of the fraud-liability shift in the United States this year,” said Nick Holland, head of payments for Javelin Strategy & Research.

Don’t be one of those unaware businesses.

For more information about EMV® and its impact on your business, contact your First Data Business Consultant Ken Keifer @ 424-903-6877 or e-mail ken.keifer@firstdata.com.

Joe Dysart is an Internet speaker and business consultant
based in Manhattan.
joe@joedysart.com
www.joedysart.com