What EMV Means for Small Businesses

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In 2009, credit card fraud cost businesses and consumers over $190 billion. Over the past seven years, credit card fraud has doubled. And, in 2014, 31.8 million U.S. consumers experienced card fraud, tripling the amount of cases reported in 2013. Thieves who steal card information can potentially steal the identity of the card user. The alarming rate of credit card fraud coincides with identity theft that continues to be a major problem in the United States, where 12.7 million people were victims to this crime.

1960s Technology

The magnetic stripe card was invented in 1960, specifically for use by the U.S. Government. It’s mid-20th century technology, but hackers and thieves are using 21st century technology to break into financial accounts. Gaining consumer information from a magnetic stripe is easy for them.

Magnetic stripes allow criminals easy access to important financial information, and in some cases, personal information. Homemade debit cards with a victim’s information on it—stolen through hacking—are easy to make. Skimming and other fraudulent scams have also been found on non-compliant magnetic stripe terminals throughout the country.

Credit Cards Had to Change

Much of Europe and other developing nations throughout the world adopted EMV technology many years ago. The use of the embedded chip changes the way information is exchanged.

With magnetic stripes, personal information had no unique identifier during the transaction. This allowed thieves to capture and replicate the information, then imprint it on a card or use it online. Cards with chip-in technology assign a token that changes with each transaction. This is called tokenization. The chip enables the card’s information to change, whereas the magnetic stripe was always the same.

Each transaction becomes an individual event with a specific number, or token, attached to it. The token is different for each transaction. If a thief was to try to use the token, then their fraudulent transaction would be declined.

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Rising Costs of New Technology

You’ve probably received your new cards in the mail and noticed the chip on the left side. All of the major card issuing banks have upgraded their debit and credit cards with the chip-in technology, even though the reissuing of cards is a major expense.

Estimates for the total costs to retailers for upgrading their systems is more than $8 billion. For small-to-midsized business, upgrades can be a major expense and change their point of sale procedures, which is why many of them are slow to implement it. Fortunately, merchants are not required to install terminals that read chip-in technology; however, there is a shift in liability for those businesses that do not make the change.

Assumption of Risk

Merchants that have not upgraded their systems are taking a risk. For now, their risk is in chargeback fees related to the cost of fraudulent transactions, as well as replacing the funds from fraud losses. In the future, the shift in liability from the card issuer to the merchant may change to include other financial and legal burdens for noncompliant merchants.

Another cost to retailers yet to be considered is the lack of consumer confidence. Once consumers become more aware of the reasons behind that funny little chip in their card, they may avoid unsecure terminals.

Less Fraud

Even though it’s known as an innovator, the United States has been slow to adopt this new technology. The biggest reason for the lack of adoption is total costs for upgrading or purchasing new systems. The expense in a new system can never be recouped, only assumed that it decreases liability and their customer’s potential to be at-risk for theft.

The next phase of upgrades will involve encrypting a consumer’s primary account number, so hackers cannot intercept the information while it travels from the merchant to the banks. Also, online transactions that are not secured through tokenization, or “card-not-present” transactions will need to be upgraded through software enhancements and a PIN (personal identification numbers). Some countries are using or testing biometrics to secure information. This technology, from fingerprint to retinal scanners, is another possible direction to prevent credit card fraud in the not-so-distant future, but it is still very expensive to implement.


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