New chip-based credit card standards could leave you with the bill if you haven’t upgraded your credit card reader.
(August 13, 2015) Be prepared, hoteliers. On October 1, new rules related to credit card fraud take effect, and if you haven’t upgraded to chip-reading technology for your credit card processing, you could be liable for fraudulent payments. It’s all a part of the roll out of new chip-based cards under the EMV (Europay, MasterCard and Visa) global interoperability standard, and new compliance language will place the liability for fraud with whichever party is using older technology.
That means if you have a chip-enabled reader and your customer only has a magnetic strip card, the bank that issued the card is liable for fraud. The opposite is also true. If you haven’t upgraded to the new technology, and there is fraud with an EMV card, you’ll be left paying the bill.
The shift to chip-based cards and readers makes sense.
The U.S is the world’s last major market that still uses the old-fashioned swipe-and-sign magnetic strip cards, and consumers and merchants are paying a serious price. The antiquated card technology is a major reason why the U.S. has nearly half of the world’s credit card fraud, as revealed in a 2014 U.S. Senate Judiciary Committee hearing, despite it being home to only approximately a quarter of all credit card transactions.
“EMV isn’t a mandate,” said Janette McGrath, vice president with MasterCard’s U.S. Product Strategy Division in a recent National Restaurant Association webinar on the new credit card standards. “There isn’t a penalty if you don’t meet the October 1 date. We really are trying to create an incentive to get everyone to move to this more secure payment system.”
Security is, indeed, the major consideration for the shift to chip-based cards. The traditional American credit card store personal information in a magnetic stripe on the back of the card, whereas EMV cards store information on a secure computer chip, which generates a one-time-use security code for every transaction. According to the EMV Migration Forum, a consortium of industry players that support EMV chip implementation across the United States, this makes counterfeiting virtually impossible.
Chip cards also require a pin number, further securing each transaction. These cards also protect against point-of-sale breaches like the Target breach in 2013.
“If there’s a tamper detected, the card will erase all the information that’s stored on its chip,” said Michael English, executive director of product development at Heartland Payment Systems, at the same EMV webinar attended by McGrath. “The card uses cryptograms that authenticate the user and the card.”
Switching to EMV is, however, a major undertaking not to be taken lightly.
“The training of staff is going to be imperative because these cards are going to be relatively new to the consumers as well,” said English. “It’s going to take a lot of patience on both sides to make the transition.”