How ‘chip’ credit cards work
• When inserted into a terminal, a chip card generates a unique, one-time code necessary for the transaction to be approved.
• Because this code changes with every transaction, even if the card data is stolen, the information can’t be used to create counterfeit cards because the stolen code would have already “expired.”
• This feature makes EMV chip card data a less attractive target for criminals to steal.
• Counterfeit fraud in countries such as Australia, Canada and the Great Britain fell by 50 percent to 75 percent after merchants and financial institutions adopted chip technology.
Source: Visa
Business owners throughout Ohio and the U.S. face a difficult and potentially costly decision in the coming months as they grapple with an Oct. 1 deadline to upgrade their credit-card processing equipment or be forced to foot the bill for fraudulent purchases.
On Oct. 1, the liability for fraud or improper charges shifts to the retailer, rather than the bank or other financial institution that issued the credit card, if the retailer’s credit card equipment is still using the decades-old “swipe” technology on a card containing both a microchip and the more common magnetic stripe.
Proponents say the newer “chip” technology — dubbed EMV, short for Europay-MasterCard-Visa, the global standard for card transactions that has been in place in Europe and elsewhere for several years — will greatly curtail credit-card fraud in the U.S.
But upgrading equipment will cost business owners anywhere from a few hundred dollars for the simplest single-terminal system to tens of thousands of dollars for more complex systems that include multiple point-of-sale terminals and/or mobile hand-held credit-card devices that will be used in restaurants and similar retailers.
Natalie King Albert, president and owner of Dayton-based National Processing Solutions, said some credit-card processing equipment sellers are seizing upon the deadline to peddle soon-to-be-outdated equipment. Albert, who hosted a session on the topic for local business owners on Thursday at an office at Fifth Third Field, encouraged retailers to avoid buying anything quickly, but to contact their payments processor to discuss the next step.
“Take your time, consider your options, and don’t jump into purchasing equipment you may regret having,” Albert said of her advice to business owners.
The deadline was set about three years ago, but many local business owners say they’re just beginning to hear about it.
“This came from out of the blue for everybody,” said Lance Stewart, owner of the Oakwood Club restaurant.
Stewart, who attended Albert’s session Thursday, said fine-dining restaurants are under greater pressure to meet the deadline, since their higher check averages increases their risk of fraud and disputed charges. But large full-service restaurants also face potentially higher costs, in part because portable card-reading devices will have to be purchased so the checks can be processed tableside.
“The cost will be a major hurdle, a major challenge,” Stewart said.
Small retailers that have a single “brick”-style credit-card reader may be able to comply with requirements for $200 to $300, but larger retailers could face costs of $20,000 to $40,000, Albert said.
The National Retail Federation and its statewide affiliates have urged credit-card issuers to help offset the costs businesses will have to pay. American Express has offered a $100 rebate when new equipment is purchased, but other card companies have not followed suit.
The NRF estimates that it will cost retailers between $20 billion to $30 billion total for hardware, software and training to convert or adopt chip and related technology, according to Holly Nagle, public affairs manager for the Ohio Council of Retail Merchants. Nagle said she corresponded with a convenience store member who has projected it will cost an average of $17,000 per location to make the conversion.
“It’s a substantial cost, and retailers shouldn’t be unfairly burdened,” Nagle said.
“Purchasing chip and PIN technology costs retailers a huge sum of money and doesn’t generate any profit or additional revenue, so making the adjustments are difficult in the short term,” Nagle said. “However, making the transition is a worthwhile investment in the long run, as it will address two priority issues for our members: combating fraud and securing consumer data.”
Visa earlier this month launched a 20-city tour to educate small businesses as well as consumers about payment card chip technology. A recent study conducted by the Aite Group found that one-third of small- and medium-sized merchants are still unaware of chip technology, Visa officials said.
Stephanie Precht, director of public policy and economic development for the Dayton Area Chamber of Commerce, said the chamber “hasn’t yet heard a lot from our members on this issue, (but) we know as the Oct. 1 deadline approaches, more and more concerns will be raised.”
The chamber is working to provide training and industry updates about the shift to EMV technology, Precht said.
“While there will be an upfront cost for many businesses as they shift to the new technology, over the long term, it is in the best interest of the businesses to update their processing practices. Liability costs only come into play in the case of a fraudulent transaction; however, those liability costs can be significant, particularly for some of our small business members,” Precht said.
“There is a significant education and training component that we are working to assist our member businesses with over the course of the next several months.”
Albert said retailers should be assured that their existing credit-card processing equipment will still work on cards containing security chips, and she said credit-card companies “are still sorting out the exact protocols and procedures” for the transition to the EMV system — yet another reason for business owners to hang onto their current equipment for now.
“I think there will be a flurry of activity surrounding this in the late summer,” Albert said.
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