New rules taking effect today may shift financial liability to your business for fraud costs associated with the use of counterfeit, lost or stolen “smart” credit cards.
The good news is, you can avoid this financial liability – and significantly reduce the risk of credit and debit card fraud – by upgrading the equipment you use to process card payments now.
The new rules are the result of a shift by credit card companies to chip-based cards that are easier for businesses to authenticate and very difficult for criminals to copy. Also known as EMV – after Europay, MasterCard and Visa, the three credit card companies that worked together to create them – these smart cards contain a tiny computer chip that merchants with chip-enabled payment terminals can read to authenticate the card and the cardholder when a PIN or signature is required. They replace cards that rely on less secure magnetic strip technology.
If your business hasn’t made the switch to EMV technology, there are many very good reasons for making sure you do so. Here are three of the biggest:
1. You’ll lower the risk of card fraud.
It’s no secret credit card fraud is on the rise in the U.S., with losses due to card fraud expected to exceed $10 billion in 2015, according to Nilson Report data. In fact, the U.S. accounts for more than half of all card fraud worldwide, even though our country generates just 25 percent of the world’s payment card transactions.
One reason credit card fraud has been so prevalent in the U.S. is because it has delayed implementing smart credit card technology. In Canada, for example, there has been a 54 percent decline in counterfeit and lost or stolen card fraud since EMV’s introduction in 2008.
When card fraud goes down, everyone benefits, and your participation will help.
2. You’ll reduce your own financial liability.
Historically, the bank that issues a card has been held financially responsible for any losses that occur when a counterfeit, lost or stolen card is fraudulently used in a transaction. The new chip-based cards, however, make it much easier to stop potential fraud in its tracks.
That is why U.S. credit card companies – including American Express, MasterCard, Visa and Discover – are shifting financial liability for fraud to merchants if they complete a fraudulent chip-enabled card transaction using a terminal with magnetic strip technology only, beginning today. The credit card issuer will still be responsible for any potential losses if one of its non-EMV cards is used at an EMV-ready terminal. Depending on the size of your transactions, the risk of non-EMV compliance could be substantial.
3. You may be able to expand your payment options.
The switch to EMV technology offers additional value to you and any customers who are interested in making purchases using mobile payment technologies such as Apple Pay, Samsung Pay and Android Pay.
Depending on the EMV solution you choose, you may be able to accept these “contactless” forms of payments.
The bottom line: the cost of an upgrade may be a small price to pay, compared to the financial consequences of fraudulent transactions processed using magnetic strip technology. And it just may give you an advantage with customers who are looking ahead to the future of payment technology.
Whitney Morrow is senior vice president of Commerce Bank’s treasury services department. She may be reached at whitney.morrow@commercebank.com.
