For more than 50 years the U.S. has employed the magnetic stripe and signature system for credit card authentication. The problem is, they’re not as secure as retailers or banks would like and have led to a high level of fraud. Payment technology provider, Square, states the U.S. has had the most card fraud in the world over the last 5 years.
Meanwhile, the U.K. and Europe have been using EMV (Europay Mastercard Visa), also known as chip-and-PIN technology, for over 10 years, making credit card transactions more secure by encrypting and safeguarding private cardholder data.
Well, EMV-enabled cards are finally coming to America. As of October 2015, retailers across the U.S. will be required to accept these new credit cards by deploying Point-of-Sale (POS) terminals that read chip-enabled EMV debit and credit cards.
One of the biggest challenges to retail management this year will be budgeting and preparing for this new form of credit card transaction. But, according to Forbes, “poll results show more than 80% of Americans are ready for ‘Chip-and-PIN’ features.” While the same article points out that EMV-enabled cards will not completely eliminate fraud or retail data breaches, removing magnetic strip cards from the payment process is a step in the right direction to reducing both.
So, the big question is: are you ready?
Understanding Chip-and-PIN & Chip-and-Signature Cards
When the credit or debit card embedded with a microchip is inserted into the terminal, the user is prompted to enter their PIN. The PIN replaces the traditional signature on the printed receipt.
While chip-and-PIN is used in the U.K. and Europe, chip-and-signature cards are expected to be rolled out in the U.S. The variance in the processing is, when the card is inserted into the payment terminal it will print out a receipt stating “verified by signature,” and the cardholder signs that receipt.
The reasons vary as to why the U.S. has gone with this form of security verification versus PIN, from regulatory and logistical restrictions by banks to ATM machines across the U.S. that are not currently equipped to change a chip’s PIN when required.
For some banks, such as Wells Fargo, their chip-enabled cards work as both chip-and-signature, and when needed, such as when consumers travel abroad, as chip-and-PIN. And, for both types of EMV processing, the added security happens with each card use, as the chip generates a unique, one-time authentication cryptogram signature that far exceeds the security capabilities of the old swipe and sign cards.
Preparing for Chip-and-Signature Cards
Getting ready to accept and process chip-enabled EMV cards will require retail management to purchase new POS terminals. Some manufacturers anticipated this change and equipped their terminals with this technology a few years ago, so it will only require merchants to upgrade their software.
New terminals are expected to range from $150 to $300, but there are cheaper options as well. As in free. Square is giving away 250,000 wireless readers that support EMV, contactless NFC (near field communications) cards, Apple Pay and traditional swipe cards. This will require these merchants to sign up to use the Square payment processing service.
When and if retail management decides to make the switch to supporting EMV cards, training staff plays an important part in the planning process. Running training sessions on how to process each type of payment transaction will provide a smooth check out for customers and avoid stress on employees and management staff. If you’re considering this move, you may also want to check with vendors involved in your payment systems, including your bank and credit card companies, and discuss plans with your IT staff.
Consequences of Not Making the Switch
Currently the excessive fraud mentioned earlier has all been absorbed by the banks. On October 1, 2015, the deadline for merchants to support EMV cards, will mark the day where the liability shifts from the banks to the merchants.
This only occurs if the merchant accepts a fraudulent chip card and hasn’t upgraded to an EMV reader, which would be able to detect that the chip card is a counterfeit. Depending on the amount of the transaction, liability costs could easily exceed the price of upgrading your payment terminals.
Additionally, customers will come to expect merchants to have EMV terminals in their stores, which will protect them from fraud as much as it will the banks. New terminals will also support other forms of payment customers may demand, including NFC for contactless payment and Apple Pay, which are slowing growing in adoption.
U.S. Retailers, are you prepared for the switch? Are you a European retailer using similar technology already? Drop us a comment in the section below, and join the discussion!