OUR THOUGHTS ON:

EMV Chip Card Technology: What You Should Know

Retail

By Adam Goode

October 1, 2015 was the deadline for most merchants to upgrade their credit card terminals to EMV-enabled devices or risk assuming responsibility for any counterfeit card fraud losses transacted at their business.  Merchants that accept credit cards via automated fuel dispensers have a deferment until October 1, 2017 to comply or risk assuming the same liability. 

EMV stands for EuroPay, MasterCard and Visa, which represent the three organizations that developed the specifications.  Cards with this technology will contain an embedded microchip that makes counterfeiting nearly impossible, according the Visa.  Each time the card is used, the chip will generate a unique one-time code to authorize the transaction.  This feature is not easily duplicated in a counterfeit card.  The processing of these cards is different than the magnetic-stipe cards we are accustomed to today.  Cards with EMV technology are dipped into a credit card terminal versus being swiped.  What this means for merchants is that new processing devices are needed to read the microchip.      

According to a recent Nilson Report, the U.S. accounts for approximately 25% of worldwide credit card use, but accounts for nearly 50% of credit card fraud losses.  As a result, U.S. banks are highly incentivized to see this new technology implemented.  The U.S. is the last major market to adopt this technology, with the vast majority of the world having already done so.  In fact, some European countries have been using this technology for more than a decade.  It’s estimated that approximately 70% of non-U.S. credit card terminals are designed to accept the chip-based cards.  Studies have shown that these markets have seen a significant decline in counterfeit card transactions since implementing this technology.     

U.S. merchants that have not upgraded to EMV card readers yet run the risk of assuming the liability for any fraud losses related to any counterfeit cards they accept.  Previously, the card issuer would have absorbed this cost.  Today, if a criminal purchases $500 of product with a counterfeit EMV chip card and the store doesn’t have an EMV chip reader, the store would be liable for the $500 loss. 

Merchants that haven’t yet upgraded have a decision to make.  These new standards do not require the merchant to switch, only that they are now liable if they don’t switch.  Business owners will need to decide if the cost to upgrade outweighs the potential cost not to upgrade.  In markets that have adopted this standard, the vast majority of merchants have eventually upgraded, so it stands to reason that this trend in the U.S. will follow suit.  Business owners who haven’t yet updated will need to ask themselves what exposure risk they are willing to accept between now and the time they eventually do upgrade.       

Visit the Our Thoughts On blog for more articles pertaining to the retail industry and visit the Schneider Downs Retail Services page to learn about services that we offer companies in the industry. 

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at contactSD@schneiderdowns.com.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2018 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

comments