By Michael Gavin
If you are a professional in the merchant services industry, you have most likely heard of the upcoming shift to EMV in the United States. The acronym EMV stands for the three companies that initially promulgated the global standard for chip cards: Europay International, MasterCard Worldwide and Visa Inc. (In 2002, Europay merged with MasterCard.) EMV is central to a major effort to reduce fraud in the United States.
With this transition, card issuers will be distributing new cards to consumers, and businesses will be purchasing EMV-capable equipment. However, some small businesses may not be aware of EMV or may not feel the need to make the switch. It is critical to get a better understanding of EMV so you can prepare your prospects and existing customers for the upcoming migration. Providing valuable advice and helping your customers make a smooth transition will be appreciated and can build stronger relationships with your customers.
EMV has been around since the early 1990s, and many major markets, including Canada, Europe and Asia, have used it for years. So why has it taken so long for the United States to adopt it? Cost has been the primary barrier to adoption due to changing merchants' equipment over to EMV-capable readers and issuing new credit and debit cards to consumers. Implementing EMV in the United States is an extremely costly, but necessary, initiative. In its 2011 report EMV in the U.S.: Putting It into Perspective for Merchants and Financial Institutions, First Data Corp. estimated the cost of EMV implementation to total $8 billion.
The EMV adoption was also delayed in the United States due to a lack of demand from consumers. However, with the recent data breaches, including major retailers Target Corp. and Neiman Marcus, consumers are now recognizing the need for more secure payment methods.
Some consumers are already anxiously awaiting their new cards. According to "Why Consumers are Itching for EMV Cards," published by Pymnts.com on July 23, 2014, a recent MasterCard survey indicated 57 percent of American consumers are expecting to receive their EMV chip cards in the mail within six months. Although some consumers may not fully understand the technology behind the EMV chip cards, they are aware of the enhanced security and will feel more comfortable making purchases with their EMV chip cards.
U.S. consumers have already started to receive EMV chip cards from major credit card issuers and banks. These EMV chip cards have embedded microchips that encrypt transaction data uniquely for each transaction. Today, Americans swipe credit cards that employ a magnetic strip (mag stripe) on the back. However, Marc Castrechini pointed out in "What is EMV?," published by Merchant Warehouse on July 12, 2012, that this mag stripe stores the transaction information the same way for every transaction, making it easy for thieves to steal consumers' information and create counterfeit cards.
With EMV, consumers will insert chip cards into EMV-capable terminals and will be asked to either sign or enter a personal identification number (PIN). While consumers quickly swipe cards today, this will be a different POS process; however, it will enhance the security of consumers' sensitive payment data, which will lead to a reduction in fraudulent transactions in the United States.
The EMV migration is not only a shift to new, more secure cards for consumers and equipment for merchants, but it also involves an important liability shift. Starting in October 2015, businesses that do not support payments via EMV-capable equipment will be held liable for any fraudulent transactions, instead of the banks that are held liable today. While some small businesses may be reluctant to switch to EMV-capable readers due to the cost and time involved in implementing a new process, they need to be aware of the risks of not supporting EMV. If being held liable for any fraudulent transaction at their businesses is not enough to convince them to switch, explain to them the potential consequences that could come along with being held liable for a data breach.
For example, Target experienced a serious data breach in the fourth quarter of 2013 during which more than 40 million accounts were hacked. As reported by Hadley Malcolm in "Target Losing Customers Following Data Breach," published March 11, 2014, in The Tennessean, this caused the company to lose customers and suffer from a significant decrease in sales. Customers became hesitant to shop at the store, and Target's reputation was damaged.
According to Natalia Angulo's post "Is Your Business Ready for EMV?," which appeared March 3, 2014, on the Fox Business Small Business Center blog, small businesses cannot afford to lose customers and have bad reputations. Hackers tend to target small businesses, and one large fraudulent transaction could be enough to put a small mom-and-pop shop out of business.
Since small businesses typically have small customer bases, they need to do everything they can to keep their customers satisfied to keep them coming back. Implementing EMV-capable equipment early on will show their customers they are ahead of the game and that they care about their customers' security. Getting an early start on EMV adoption will allow businesses to familiarize themselves with the new EMV-capable equipment prior to the October 2015 deadline.
Ensure your customers and prospects are prepared for the EMV changes that can have a significant impact on their business. October 2015 will be here before we know it. Are you and your customers ready?
As essential as EMV is to improving card data security, card fraud likely won't disappear after U.S. EMV implementation; it will move online and to other card-not-present (CNP) transactions.
These days CNP fraud accounts for 62 percent of all fraud involving cards issued in the U.K., up from 30 percent in 2004, noted Douglas King of the Federal Reserve's Retail Payments Risk Forum. CNP transactions now account for 54 percent of all fraud involving payment cards issued in France, up from 25 percent in 2006.
As Merchant Warehouse Senior Vice President, Sales, Michael Gavin is responsible for day-to-day management of the company's direct sales, as well as leadership of all sales activities within the company's agent channel. He has served as a key leader within the organization since joining the company in late 2000. Merchant Warehouse's Genius Customer Engagement Platform is a single, intuitive platform that integrates every transaction technology, loyalty program and more. Contact Michael at email@example.com. For more information on the company, visit http://merchantwarehouse.com.
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