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EMV Chip Card Acceptance: Gotta Be or Let it Be?

We have a guest blogger on Direct Talk today! Independent Credit Card Processor, Matt Yablunosky, shares his thoughts on an issue facing merchants of all shapes and sizes - what’s all the buzz about those flashy-foil looking, small-squared microchips now implanted onto many credit cards?

The answer varies greatly depending whom you ask!

Typical Card Holder Customer: “Beats me. It came in the mail and my bank said I need to start using it ASAP to reduce fraud.”

Card Issuing Bank: “You got that right! It costs us tons of money to produce these fraud reducing chip cards. Please start using yours today so we can help keep your banking costs down.”

Chip Card Accepting Merchant: “I have no idea. All I know is I don’t want to spend any more money than needed to keep my business running. I bet these chip cards are just another money grab from those greedy banks and say-one-thing-do-another credit card processors.”

Credit Card Processing Company: “Why y’all looking to us for answers? We simply serve as the ‘go-between’ facilitator’ for your plastic paying customers and their bank who makes sure you get paid. We don’t make the rules. We just follow what Visa/MasterCard/Discover/American Express tells us to do.”

My take as an Independent Credit Card Processing Agent is this: Every merchant client has a different method of accepting credit card payments and therefore different risk levels of unknowingly being exposed to fraudulent transactions. My job is to assess each client’s risk level and recommend the most cost-effective and operational efficient solution.

So why this continued referenced to the word risk? Because risk is the basis for EMV’s entrance to the market. Risk is also a key determinant in what rates merchants pay for the ability to accept their customers’ credit card payments.

So…what again exactly EMV? Is that another words for chip cards? Yes. Europay MasterCard Visa (EMV) is the industry term given to the new chip card technology. And actually, EMV is only new to us in the U.S. EMV has been the long accepted processing standard overseas where credit card fraud was once rampant. Hence, ‘Europay’.

Back to the basics about risk and its connection to EMV chip card technology. Risk/fraud comes in 3 ways:

● Processing a Lost/Stolen Card

● Processing a Counterfeit/Copied Card

● Disputed/Reversed Transactions

Cardholder customers face risk pretty much only when their card is lost or stolen. Until the chip card issuing banks begin requiring customers to enter a security PIN at the time of the transaction, your chip card has just as good a chance of being lost/stolen as a non-chip card. The cardholder benefit to EMV technology is the personal data contained on the micro-chips will be far more secure than what was initially encrypted into today’s prevailing black magnetic strip.

Banks primarily encounter risk two ways: First, when they must return money to cardholders due to non-authorized, fraudulent sales transactions (think lost/stolen cards). Secondly, when a cardholder successfully disputes an initially authorized payment for a service that was never provided (think a repair job that never fixed your problem). Again, EMV is highly effective at combating counterfeit/copied or otherwise compromised cards but provides little defense against stolen cards or customer initiated quality of service disputes.

Merchants now face more (POTENTIAL) risk than ever. Drum roll please. If a merchant unknowingly processes a fraudulent transaction by swiping a compromised card containing an EMV chip into a non EMV chip card enabled terminal, that merchant…and no longer the banks….is now responsible to refund the money back to a cardholder - plus any costly fines imposed by the card brand associations (Visa/MasterCard/Discover/AMEX).

To maximize its effectiveness, EMV technology must find a way to counter both stolen cards and counterfeit cards. Today’s ‘chip and sign’ method may solve the counterfeit problem but not until ‘chip and PIN’ is universally implemented, will it also solve the problem stolen cards.

OK. The risk factors and new EMV provided defenses seem easy enough to understand from the cardholder and banks’ perspective. But why all the uproar from the merchants? Why not just protect yourself and use EMV enabled, chip card accepting, processing equipment? The three reasons behind merchant adoption reluctance are:

EQUIPMENT COSTS: Some credit card processing companies will provide merchants EMV enabled equipment free of charge. Others will not. Merchants may now find themselves asking the question: “Is it worth me spending a couple hundred bucks today to prevent what could be a several thousand dollar expense later?”

OPERATIONAL COSTS: With the enhanced, super tough to compromise technology now embedded into the new micro-chips, the speed at which transactions are processed have slowed down. Another side-effect is the requirement for tips to be entered during the time of the transaction and not the typical ‘write-on-receipt’. If you own a busy lunchtime sub/pizza shop or drive home from work dry cleaners, do you want to increase customer wait lines and then once they reach the cashier to be asked if they want to add a tip...just on the off chance a future $10/$20 transaction may be fraudulent?

ASSIGNMENT OF COSTS: Merchants may understandably take the approach “Why is it now my responsibility to spend $ to prevent fraud. Shouldn’t that be the bank or credit card company’s job?” Yes, to a degree, it is the bank’s job to minimize risk. You see that assignment of cost evidence by the money banks spent to create cards containing these chips. The card issuing banks have essentially said to merchants: I’m not gonna both spend a bunch of money producing chip cards AND then also refund the money needed to offset a fraudulent transaction just because you were too cheap or lazy to upgrade your processing equipment.”

Pretty cool dynamics huh? This whole assignment of cost and risk was conveyed expertly in the recent New York Times article Chip credit cards give retailers another grievance against banks.. “We think the focus should be for retailers to turn on their chip readers and use the technology that’s available to them,” says a top banking official. Compare that to the board member of a C-Store industry trade group: “It does not appear that the card companies took into consideration the realities of operating a small business when they came up with their transition plans.” Sounds like fighting words indeed.

Bottom line to the business owner merchant is this: You need to make a good decision about what approach to EMV card acceptance is right for you. That good decision must be made with good information. Talk to your banker, then talk to me.

To contact Matt about this or other credit card processing aspects, please drop him an email at or call him at (919) 247-8823.

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