The year of EMV migration is finally upon us, and for small merchants in the US, that means significant changes when it comes to payments.
Short for Europay, MasterCard, and Visa, EMV is a payments standard in which tiny integrated circuits, or computer chips, are embedded into credit cards to create a unique impression that makes counterfeiting relatively impervious to the hacks of fraudsters.
A major difference between how chip cards and magnetic stripe cards are used is the manner in which they communicate with the reader. While magnetic stripe cards are swiped through a card reader, EMV cards are inserted into a POS terminal and left in place for the duration of the transaction, while the reader and the embedded chip in the card talk back and forth.
On October 1, 2015, all merchants in the US are required to have updated their POS terminals and backend software to begin accepting chip cards -- otherwise they become liable for incidents of fraud, instead of the credit card companies themselves.
With an economy as large as that in the US, it's easy see how such a shift in payments standards and fraud liability could cause a bit of concern. Especially for the country's more than 23 million SMBs, whose owners are more likely to be wrapped up in operations than in learning a new language of payments.
Luckily for small businesses, a silver lining is out there. Here are a few things to keep in mind as the EMV migration deadline approaches.
Think soft, not hard
The "deadline" of October 1, 2015 should not be thought of as the edge of a cliff, but rather the slight slope of a rolling hill.
In other words, once the deadline date passes on October 2, there isn't going to be some massive shutdown for non-EMV payments acceptance. Magnetic stripe cards will still work, on both old and new POS terminals. The biggest change is the liability for fraud, which as stated before, will fall into the lap of the merchant and not the credit card companies.
"October 2015 is not a deadline. It's actually a liability shift," said Carolyn Balfany, SVP of product delivery for MasterCard. "Which means after that time, the entity that has the lesser security will hold the liability for counterfeit fraud."
Now to take a step back, it's worth noting that counterfeit fraud is the most prevalent type of fraud plaguing the payments industry and small merchants, albeit not the only one. With a chip card, internal processing capabilities are used to validate the card as being authentic. When a chip card is inserted into the terminal, it creates a code or cryptogram, and it is unique for each transaction. That digital cryptogram protects against counterfeit.
In terms of ease, SMBs beat large merchants
Small businesses are unlikely to have a unit devoted to payments and monitoring the whole EMV migration process, but that doesn't mean the ordeal is more difficult for the little guys. Especially when it comes to cost.
EMV migration is a huge undertaking on the issuer side. Then there are the new POS terminals and other things like testing, approving and back-office integration that are significant costs on the merchant side.
However, when looking at the migration process as a whole, the smaller the business, the less hardware and software there is to be swapped.
"Call it a bonus point -- because the cost to switch out terminals includes more back office integration for large merchants," said James Wester, research director for IDC Financial Insights. "Smaller merchants who can just plug-and-play new terminals may be more prepared for the switchover when it comes."
Small businesses also have the added support from key issuers. For example, American Express last week rolled out the Small Merchant EMV Assistance Program, which is designed to give SMBs a repository of information for when they prepare to make the EMV switch. It also offers a $100 rebate to SMBs with a charge volume of less than $3 million, after they upgrade their POS terminals and software.
Keep consumer demands in mind
The issue of fraud has ballooned so much in the US that it is no longer just a problem for banks and credit card companies to deal with. Consumers are concerned and they want better protection.
Citing recent survey data, Kimberly Lawrence, the SVP of Global Corporate Initiatives for Visa, said 63 percent of consumers want a chip card as soon as possible.
"Security is attractive to all consumers and they understand the benefits of chip," Lawrence said during a recent media briefing on the status of EMV migration. She went on to say that 87 percent of consumers are comfortable with transitioning, and that when they get their new chip cards, they are likely to adapt very quickly.
And thanks to the recent uptick in mobile payments adoption, consumers are now more open minded to changing up the payments norm, and less likely to be confused by the whole process.
"I think they will get it," Lawrence said. "Just the adoption we have seen with Apple Pay to date has been indicative with what we will see with consumers looking for new and innovative ways to pay."