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Businesses Prepare for EMV Liability Shift

Posted October 6th, 2015

EMV machine

October 1 marked an important date for U.S. businesses that accept payment cards. Retailers that have not transitioned to accepting credit cards that use new EMV technology will now be held liable if credit card fraud or a hack occurs. The liability of credit card fraud and hacks used to be held by the card issuer, but EMV is changing the game.

What Is EMV?

EMV is a technical standard for smart payment cards and the machines that accept them. EMV stands for Europay, MasterCard, and Visa, which are the three companies that founded the standard. Each smart card (or chip card) contains a microprocessor chip that exchanges dozens of pieces of data between the card and the machine processing the payment before the transaction can go through.

One important piece of the transaction puzzle is the fact that chip cards transmit a unique code for each transaction. This makes stealing the code a fruitless endeavor for card thieves. It would be like stealing a password that is already expired.

This approach to verifying card transactions is very different from cards that use a magnetic stripe, which only holds the card number and expiration date. Because chip cards must go through a more complex verification process, they are much safer and likely to reduce fraud.

How EMV Will Affect Businesses

The credit card industry is trying to make the shift to EMV as smooth as possible for consumers and merchants. To do this, all new chip cards will still have a magnetic stripe on the back for swiping. Used properly, however, chip cards are “dipped,” rather than swiped. Dipping works by inserting the card into the reader and keeping it in the machine until the transaction is complete.

The big concern for businesses regarding EMV stems from this liability shift. Although a business’s current card reader will be able to accept payments from chip cards, the transaction won’t be as secure as it would be with one that uses EMV technology, making the business responsible for any resulting counterfeit fraud.

Despite this shift in liability, many small businesses aren’t rushing to switch out their current card readers. This is because they don’t think there will be enough chip cards in use to warrant the shift. Whether this prediction will prove true is yet to be seen, but you can bet the credit card companies will be pushing their customers to make the switch as soon as possible.

To see how a chip card works, check out the video below.

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