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EMV: What You Need to Know About Chip-and-PIN Payments

EMV: What You Need to Know About Chip-and-PIN Payments daily-golden-nugget-1226-97
Today's topic jumps outside the bounds of marketing, SEO, and websites and goes directly to the bottom line of your business. Every retail store owner who accepts credit cards needs to read this.

The deadline to upgrade your credit card processing equipment to the Europay MasterCard Visa (EMV) smartcard standard is quickly approaching. The deadline is October 1, 2015; that's just 178 days from today!

What is an EMV Enabled Payment Card

For a primer on EMV cards, please jump to this previous Nugget about EMV cards here.

EMV cards have embedded microchips to store your payment information instead of the traditional magnetic strip on the back. At the Point-of-sale (POS), instead of swiping your card through a card reader, you will insert your card into the machine and enter your PIN. It's similar to how you use an ATM.

Using an EMV Card For a Purchase

Although EMV is the official name of this smartcard you'll often hear it referred to as "Chip-and-PIN" for obvious reasons. You'll also hear EMV referred to as with the less obvious lingo of "Chip-on-Chip," which refers to the other chip inside the card reading terminal.

Speaking of the card reading terminal, the card only slides in far enough to create the chip-on-chip connection. You then leave the card in place while you enter your pin and the transaction is approved.

Because the physical process is different, as a retailer, you would ask the customer to "dip their card" instead of saying "swipe your card."

Barrier to EMV

This microchip technology has been around for a long time, but sadly, it wasn't adopted in the USA. The first incarnation of the American Express Blue card included the EMV chips, but they had little use in the USA. It took Amex about 20 days to issue those cards because the technology was expensive and cumbersome to implement.

The overall expense to implement EMV technology is the reason why these cards haven't become popular in the USA. Most merchant companies charge retailers between $150 and $700 for the credit card terminals depending on the features. Some merchant companies charge a monthly rental fee for a terminal instead of having you purchase it outright.

According to the US census data on this website, there were 23,413 retail jewelry stores in 2012. With at least 1 credit card terminal in every store, that's an industry cost of $3.5 million just to replace them all.

Are You Ready To Dip?

Several of the reports I've read online indicate that it's harder for larger businesses with multiple locations to upgrade to EMV terminals than independent stores. This seems obvious since chain stores probably also have a few terminals in each store. Multiple locations with multiple point of sale computers could easily force a terminal replacement cost of more than $1,000.

Independent retails should be on top of this already. If you haven't already done so, call your merchant company now to request a terminal that supports EMV cards, then talk to your POS software company to find out if there's any software update or new procedure you need to follow to make it work.

If you can't afford to upgrade your Ingenico, VeriFone, or Hypercom terminal, then consider switching to Fatt Merchant. They are a relatively new merchant services company that provides free terminals to retailers and really low service fees. You can read about them here:

And If You're Not Ready In Time...

The world of credit cards will not come to an end on October 1, 2015.

The crux of this big change is who will be responsible for credit card fraud. Right now in the US, the card holder rarely loses money if their credit card is stolen. Most of the time the issuing bank deals with the financial loss, and sometimes the retailer loses money.

After October 1, 2015, the financial loss will be shouldered by whichever party failed to allow the chip-on-chip, chip-and-PIN transaction to function.

Here's how it works out when credit card fraud occurs at your retail store:

  1. If you don't have an EMV terminal, then you lose the money
  2. If the chip reader inside your terminal is broken, then you lose the money
  3. If the cardholder does not have an EMV card, then you keep the money and the card issuer loses

As you can see, most of the financial liability now falls to you, the retail store owner. All of the banks are supposed to reissue EMV cards before October 2015 as a way to guarantee they won't be financially liable any more.

The Future of Magnetic Strips

All the payment cards will have both a magnetic strip and the EMV chip. It will be several years until the magnetic strips completely fade away, especially when you consider that some stores issue their own payment cards, and the entire gift card industry uses magnetic strips.

None of my American debit or credit cards have an EMV chip yet. I've been requesting them for a while because of my frequent long trips to France. Even though the EMV technology is a standard in Europe, the card terminals still have a magnetic strip reader. Many retail stores don't even know how to use their own terminal until I show them how to swipe a card.

Eventually the days of swiping will be forgotten as we become accustomed to dipping.

The Future of Dipping

While you're in the process of upgrading your terminal for EMV chips, ask your merchant company if they support Apple Pay and other near field communication (NFC) methods of payment.

The wireless methods of payment are already available and they are even more secure than the EMV smartcards. If available, you might as well upgrade to that type of multi-use terminal right now.

AT: 04/06/2015 11:03:17 AM   LINK TO THIS GOLD NUGGET
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