If you have never encountered a credit or debit card with a chip embedded in it, you’ve probably been living under a rock for the past 3-4 years. In which case, you’ve got an awful lot to catch up on and we’ll come back to chip cards after you’ve covered the important stuff. However, if you haven’t been living under a rock and you’ve seen a chip card, chances are you’re at least familiar with the new payment process: dip the card in the EMV slot, wait, enter your PIN or sign for the transaction, remove card, and go. But as a business owner, you might still be waffling on whether you need to finally get around to accepting chip card transactions. After all, do you really need an EMV card reader?
Let’s talk about chip card readers and what they mean for businesses, and discuss whether it’s essential for merchants to accept chip cards.
What Is An EMV Chip Card?
So we’ve talked about how EMV cards require you to “dip” the chip. But why? What makes EMV more complicated than standard magnetic stripe (magstripe) transactions?
EMV simply stands for EuroPay, Mastercard, and Visa, the organizations that pioneered the technology. It’s actually the name for a set of security standards used for credit card processing. EMV has been the dominant technology in Europe and Canada for decades, but most of the world has switched over to EMV.
EMV uses a computer chip to perform complex, dynamic verification that the card is genuine. These computer chips can store and process much more data than the magnetic stripes on cards, which makes them much harder to counterfeit.
Magstripe cards are relatively easy to “clone” — that is, to copy a stolen card number onto a blank card to be used at a brick and mortar store. EMV prevents cloning, and because the verification process is dynamic (it generates a unique code each time the card is used, whereas magstripe transactions use a static code), it also helps prevent theft of the card using a skimmer. A skimmer is just a piece of hardware installed over a magstripe terminal that copies the card data when a card is swiped — the scammer installs the skimmer on a terminal and then retrieves it later to harvest the card data, presumably to sell to someone else who will try to use it to make expensive purchases online, or clone a card for themselves.
EMV chip cards help reduce card-present card fraud, which has been rampant in the US for a while now. That’s good news for anyone who runs a brick and mortar storefront — EMV protects you against some kinds of chargebacks by preventing fraudulent transactions from being possible in the first place. (It’s not such good news for online businesses, because instead of cloning cards, scammers are simply moving to the Internet to make their purchases.)
The key takeaway here? That tiny little computer chip in a credit or debit card is way more powerful than the magnetic stripe on the back of the card and therefore makes it harder for scammers to steal or use stolen credit card numbers.
The EMV Liability Shift & Your Business
You might be wondering why chip cards have suddenly appeared on just about every single card a customer has. All of that has to do with a liability shift that took place in October 2015 — but the plans were already in motion years before that.
The card associations (Visa, MasterCard, Discover, and American Express in the US) got together with banks and decided that they were going to start issuing EMV chip cards, bringing the US in line with all of the other countries that already rely on EMV. But it’s one thing to send chip cards out to customers — it’s another thing entirely to get business owners to update their hardware to EMV-compliant solutions.
The solution, then, was that the banks and card networks agreed to stop absorbing the costs of any fraudulent transactions that could have been prevented with an EMV chip card terminal. They set the date for this liability shift to October 1, 2015. After that point, the business would be eating the cost of any fraudulent transactions — meaning that instead of the banks and card networks reimbursing the cardholder for the sale, the merchant would eat the cost of the transaction (as well as the cost of any merchandise) in addition to any chargeback fees assessed by the payment processor.
(If you’re wondering, certain types of businesses are exempt from the current liability shift. For example, gas stations have until 2020 to get EMV-capable readers for their pumps. However, brick-and-mortar businesses on the whole already need to be compliant.)
Let me be clear here: There is no law demanding that you accept EMV transactions. You aren’t doing anything illegal by not having a chip card reader. However, you are putting your business and your livelihood at risk in the event that you do encounter a scam artist trying to take advantage of your lack of EMV support.
Payment processors are generally free to take whatever measures they want or feel necessary to encourage their merchants to upgrade to chip card acceptance, too. In some cases, a select few merchant account providers have started charging EMV non-compliance fees for merchants who opted not to upgrade their hardware after a certain date.
Now that we’ve covered that, let’s get to the point: In the lead-up to the EMV liability shift, sales representatives for payment processors and software providers alike were pounding the pavement, trying to convince merchants to upgrade to EMV, usually with the promise of a free or discounted EMV chip card terminal. You can still find these sorts of offers, but we strongly encourage you to be wary of offers of “free” hardware because you almost always end up paying the cost back in some other way (usually higher fees). That’s not to say there aren’t legitimate, high-quality merchant account providers with free hardware. They exist, but they are few and far between; you need to learn how to recognize the tactics used by less reputable providers and steer clear of them.
Credit card terminals can take many forms, with a variety of features (such as a customer-facing PIN pad or a wireless internet connection). However, for our purposes, you can separate them into two basic categories: (1) magstripe and EMV card readers, or (2) magstripe, EMV and NFC-capable readers.
The former are generally cheaper, because they have a simpler design and less hardware. You can still get all the other bells and whistles, so the exact cost for a terminal will depend on what features you want. As a ballpark estimate, you can expect a retail price of about $200 for a basic EMV chip card terminal.
The latter types of terminal usually cost a bit more, but are branded as “future proof.” That’s because they support magstripe transactions as well as the two technologies that are likely to dominate the US payments space in the coming years: EMV (chip cards) and NFC (contactless payments, such as mobile wallets). Again, you can get a mix of features in addition to support for the different payment types, and the more features you have, the more you will pay. If you want to know more about NFC and why it matters to the US payments industry.
One of the major hurdles in EMV adoption has been the longer transaction times with chip cards: Instead of simply swiping your card, you need to insert it and wait for the terminal to tell you it’s okay to remove the card. And initially, EMV transactions were, well, slow and laggy. To combat this, the card networks have worked hard to develop solutions to reduce the amount of time the card needs to be inserted into the terminal. Overall, the time it takes to make a payment with a chip card has dropped considerably. However, keep in mind that exact times will vary according to the hardware manufacturer as well as the payment processor (and your own internet connection speed plays a role too).
What About Mobile Chip Card Readers?
“But wait,” you say. “I don’t have a POS or cash register, or even a physical storefront. I just take payments on my phone or tablet. And people are still giving away free magstripe readers. Why do I need to upgrade?”
The mobile processing space has been the slowest in terms of EMV chip card adoption. But even so, mobile chip card readers (the kind that connect to your smartphone or tablet) are starting to catch on, too.
Most basic magstripe readers still rely on the 3.5mm headphone jack, which is obsolete on recent iPhone models. Most Lightning connector magstripe readers are expensive.
Instead, mobile payment companies (and hardware manufacturers) have switched their focus to Bluetooth connections, which work with iOS and Android equally well. And rather than make just magstripe readers that work with Bluetooth, these devices also have chip card readers built in. (I need to point out that some headphone jack card readers do support EMV, but by and large chip card readers use Bluetooth.)
As with terminals, mobile chip readers tend to come in two designs: magstripe and EMV, or (2) magstripe, EMV, and NFC/contactless (often called “all in one” readers). However, mobile hardware tends to vary much more than terminals, so you will see some exceptions, such as the Square Contactless + Chip Reader which supports chip cards and NFC payments, but not magstripe.
Do I Need To Accept EMV Chip Cards?
EMV is officially here to stay. However — much to my dismay — magstripe transactions probably aren’t going away yet, either. So where does that leave us?
As a business owner, you should have an EMV chip card terminal or mobile reader. It is the smart decision to protect your business and it can also help win over customer trust by showing that you’re keeping up with the latest hardware and security measures.
If you’re a very low-volume business, or you’re in the type of industry with very small transactions (dry cleaners or coffee shops, for example), I will admit that the risk of a fraudulent transaction is fairly low. But it’s still a risk, and an EMV terminal (or mobile chip card reader) isn’t all that expensive.
If you’re a larger business, you have a high average transaction size, or you deal in the sort of goods that are desirable to scammers, you absolutely should be looking at an EMV terminal if you don’t already use one. Again, the cost of the reader isn’t all that much, and if you do deal with larger transactions, the cost of one case of fraud could easily be equal to the cost of an EMV terminal or reader.
If you’re not accepting chip card payments yet, it’s time to reach out to your payment processor and ask about upgrading your hardware. If you’re able to, this is also a great opportunity to shop around a bit and see if another payment processor can offer you a better deal on hardware as well as transaction costs.