New and more secure credit cards are on the way, but liability for fraudulent use is shifting from banks to retailers, who need to decide whether they want to buy point-of-sale units with chip-reading technology.
I just received my renewed credit card with an embedded EMV microchip. It’s going to make my card more secure, they tell me. But what the accompanying letter doesn’t say is that the liability for a fraudulent use of credit or debit cards will quietly shift from the banks to the retailers on Oct. 1, and I suspect most dealers aren’t tuned in yet.
U.S. credit card companies are taking a tip from Europe to presumably keep cardholders’ information safe. The EMV chip is named for Europay, MasterCard and Visa, and it enables acceptance of chip-based payment cards at electronic terminals. The EMV-enabled card has been slow to catch on in the United States, due mostly to the cost involved in implementation. The chip makes it very difficult for fraudsters to access, copy or use the card information.
Paying with the chip cards will no longer require a swipe of the magnetic strip on the back of the card. Instead, customers will insert cards into a terminal slot similar to an ATM or place it on a card reading tray. There will also be mobile EMV readers that, for example, a food server would bring to the table or a gas dock attendant could bring on board. It means the customer never relinquishes possession of the card.
It should be noted that all of the new credit cards with the chip will still have the magnetic strip to swipe and pay the current way. Moreover, dealers are not being forced to acquire the new point-of-sale units that have chip-reading technology.
However, without them dealers will effectively assume a greater risk of liability for any fraudulent use of a card by scammers or stolen cards. Thus far, card companies haven’t spelled out how that will be enforced. The responsibility ultimately falls on the party that is least compliant with EMV standards. So if the card issuer hasn’t installed chips, the burden falls on the issuer. If the issuer has installed the chip, but dealers don’t have EMV readers, they will foot the bill for a fraudulent transaction.
While liability shifts this fall, it’s still going to be some time before all credit and debit cards are replaced with EMV models. A major reason is the average cost of $3.50 to issue each new EMV card. It’s expected that by the end of this year about 70 percent of credit cards will have EMV chips. On the other hand, only about 40 percent of debit cards will have been upgraded by the end of 2015.
In addition, some 12 million retail terminals have to be upgraded to accept the chip cards. It’s expected that, at best, 57 percent of retailers will be EMV-compliant by the end of this year. The cost of an EMV point-of-sale terminal is reportedly $500 to $1,000, according to creditcards.com.
Credit card and prepaid debit card fraud cost over $150 billion annually, reports the Federal Reserve. Enhanced security features provide peace of mind while reducing fraud resulting from stolen account data and from counterfeit payment cards. Moreover, it’s believed that customers are concerned about safe payment methods. EMV chip technology meets that demand, proponents hold.
So in the fast-changing world of electronic payment technology, now’s the time for dealers to determine the benefits and drawbacks that could result from adopting EMV chip technology.