Managing a Small Business
Breaches and Chips: The Coming Revolution in Payment Cards
New Security Measures Mean Big Changes for Business Owners
Credit card security is a priority for businesses and consumers, especially after several high-profile data breaches at national companies. Consumers want to know their data is protected, and businesses don't want to lose money or have their image tarnished by a breach.
While businesses work to better protect the data they collect from customers, card issuers are working to make it harder for cyber criminals to steal card numbers or use ones that have been stolen.
Chip-based payment cards, already the standard in Europe, are making their way to the United States. Also known as EMV cards – named for Europay, MasterCard and Visa – these cards include a computer chip that offers an extra layer of security when the card is presented in person to a merchant using a chip card reader. Unlike magnetic stripes that store customer data and are easily duplicated, chips create a unique code for each transaction.
According to the EMV Migration Forum, an independent organization that provides information to support the transition, an estimated 600 million consumers will have cards that contain chips by the end of 2015.
"Chip cards give consumers peace of mind when it comes to securing payment data," says Randy Vanderhoof, director of the EMV Migration Forum. "Chip cards are virtually impossible to counterfeit or copy. If the card data and the one-time code are stolen, the information cannot be used to create counterfeit cards and commit fraud."
Here's what the new standard means for business owners, and how to prepare for it.
The Rollout Starts Now
In 2014, President Obama signed an executive order to fast-track the transition to EMV technology for the federal government, adding chips to its payment cards and requiring federal agencies to accept chip-enabled cards.
Meanwhile, the payment card issuers agreed on October 1, 2015, as an important date in the EMV transition.
During the transition, most consumers will be issued "chip and signature" cards, containing both a chip and a magnetic stripe. Consumers can scan the chip for enhanced security, but the magnetic stripe will allow them to continue to shop with merchants that haven't yet upgraded their terminals.
The Biggest Incentive: Liability
While the stripe won't be eliminated immediately, you'll still want to get your business on board before the October 1 deadline. Today, the credit card issuers generally absorb the liability if a credit card is swiped in person and the transaction turns out to be fraudulent. After the deadline, the liability for fraudulent magnetic-stripe transactions will shift to the business owner.
"This means merchants that do not accept chip transactions will be responsible for fraud losses resulting from transactions that use a counterfeit magnetic stripe," says Vanderhoof.
Upgrading your technology can also help you avoid being targeted in the first place.
"Merchants need to be aware that fraudsters will likely target locations with less secure technology, such as magnetic stripe-only terminals," adds Vanderhoof. "Therefore, merchants who 'go chip' are protecting themselves and their customers from potential fraud."
Keep Your Business Ahead of the Curve
Chip cards were first introduced in France more than 20 years ago, and there are more than a billion chip cards being used today. The U.S. is one of the last industrialized nations to take advantage of this technology.
"Consumers will quickly learn that a transaction only becomes more secure if the chip card issued is used at a chip-enabled terminal," Vanderhoof says. "Once they know that, I think it's very likely that, given a choice, consumers will prefer merchants that accept chip cards."
The good news? To help businesses offset the cost of upgrading, the card companies have agreed to waive the annual security audit required of merchants if 75 percent of their transactions were made using an EMV-capable terminal.
The transition to EMV may require extra legwork for business owners this year, but don't let that deter you from taking advantage of the added security. In addition to protecting your business from potential fraud losses, Vanderhoof says, "being chip-enabled shows customers that their information security is important to your business."
Learn more about how to prepare your business for the EMV transition.
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Illustration by Mike Austin | Kara Wahlgren is a full-time freelance writer based in New Jersey. She specializes in health writing, entertainment coverage, and personal finance. Her work has appeared in Women's Health, HGTV, Fine Living, MSN, Yahoo and more.