The Merchant’s Guide To EMV Chip Cards
The transition to EMV chip cards began several years ago, and while adoption continues to pick up steam here in the states, we have a ways to go to catch up. While the rest of the world has been much quicker to adopt EMV (circa 2005 for Europe), the U.S. is dragging its proverbial heels. We won’t go into all of the drama behind the transition, but it’s safe to say that here in the United States, the transition to EMV chip cards was anything but smooth.
For small business owners who are already spinning plates with day-to-day business, feeling compelled to take EMV cards may seem like a burden. And rightly so; some of the biggest challenges to the EMV rollout are related to cost and logistics. However, the biggest hurdle for business owners is that they may not know what it takes to start accepting EMV cards, or more importantly — why it’s so important that they do. This haziness all means that plenty of businesses remain content with the old fashion magstripe readers, but what they don’t know, may hurt their bottom line.
If you feel a bit unsure, perhaps frustrated, or even curious about what’s behind the EMV chip card transition, keep reading. We aim to clear the air and set you on the right path for your business!
Table of Contents
What Is EMV?
EMV refers to a digital chip that integrates your run-of-the-mill credit card into a smart card, capable of encrypting payment data when used with an EMV reader.
What Does EMV Stand For?
EMV stands for Europay, Mastercard, and Visa; these big players combined forces in the early 90s to work on global EMV initiatives. Later, these big payment card companies were joined by Discover, American Express, JCB, and Union Pay to form what is now EMVCo. It’s important to note that EMV chip cards are just one of the initiatives of EMVCo. EMVCo also contributes to developing various payment technology standards such as 3D Secure authentication methods.
EMV chip cards are a big jump in technology from magstripe, but considering a magnetic strip is basically equivalent to the technology of a cassette tape, the change was prudent. Let’s explore the argument for EMV and how it makes payment transactions more secure.
Why We Need EMV
Before I explain how EMV makes credit card processing more secure, let me first make the case as to why the U.S. needs to continue picking up steam with EMV and other more secure forms of payment — and fast! Whenever we peel back the proverbial payment-fraud curtain, what lurks behind seems pretty intimidating.
Here are some statistics from the Nasdaq that came out right about the time that EMV shift was rolling out in 2015. These stats will put things into perspective when it comes to payment fraud.
- Despite only accounting for 24% of the worldwide card volume, the United States was responsible for nearly half (47%) of the world’s card fraud.
- Data breaches were up 46%, compromising one billion data records
- 17% of breaches were aimed at financial access, 11% for account access
- For UK customers, 35% of their losses occurred during a U.S. transaction (yikes)
To add insult to injury, there were nine highly publicized breaches in the years leading up to the EMV rollout. If we only count Home Depot, Target, Staples, and Michael’s — stores with a strong retail presence — we are looking at approx 152 million customer records accessed.
So all of this doom and gloom begs the question: Why does the U.S. still have higher rates of fraud than the rest of the world? A recent Nasdaq post sums it up nicely:
Most experts believe that the reason the U.S. has a disproportionately high amount of fraud is because it has been slow to adopt EMV, a global standard in which credit cards carry computer chips that cut down on counterfeiting by dynamically authenticating card transactions. Countries that have deployed EMV have enjoyed a decrease in counterfeit fraud as a result — 70 percent in the U.K., for example, between 2005 and 2013.
We break down this slow adoption issue even further in our post, Why Merchants Still Aren’t Accepting EMV (And Why EMV Is Still Problematic).
How Does An EMV Chip Make Card Processing More Secure?
The Nasdaq quote in the section above gives you the answer to how EMV chips cut down on fraud: The EMV chip itself is a computer that “dynamically authenticates card transactions.” The “dynamic” nature of the chip transaction refers to the encryption technology in the card that communicates with the reader, meaning the transaction data is unique each time and therefore cannot be re-used if captured by a data thief
In contrast, a magstripe reader has static data that is always present on your card. Your name, account number, expiry date — everything a fraudster needs to start purchasing with your card — is pretty easy to intercept with a magstripe. EMV readers make it harder for thieves to get your credit card data, and less of your information is vulnerable when you dip your card vs. swipe it because of the layer of encryption placed over your card data. However, EMV chips are far from the end-all answer.
Chip & PIN VS Chip & Signature Cards
When we talk about the security potential of an EMV card, we should also mention the implication of a chip and PIN transaction vs. chip and signature. The truth of the matter is that requiring a PIN is a more secure measure than a signature, which thieves can easily forge (and which most merchants rarely, if ever, check). However, it became clear that unlike our European counterparts, the U.S. was far from requiring a PIN with the EMV chip. The rollout, led by EMVco., only mandated a chip and signature at the time. But even this requirement has changed.
In 2018, the major credit card companies decided that signatures are, by and large, pointless, and therefore no longer required merchants to collect them during in payment processing. I think most of us can agree that a quick scribble on a receipt is not going to do much to deter a fraudulent sale. Despite this decision and change in policy, many merchants still haven’t updated their payment process and many still ask for a signature. This outdated practice will hopefully phase out soon; however, know that if you start taking EMV payments, you don’t need to collect a signature, which only succeeds at wasting time and paper in the process. For other, more appropriate ways you can prevent fraud, check out the Merchant’s Guide to Preventing Card-Present Fraud.
While EMV isn’t quite airtight, it’s certainly an improvement from the 1970s technology of a magstripe reader. Hopefully, we can all agree that it was time for an upgrade. What’s even more significant for the small business owner is that now fraudulent charges from magstripe transaction can cost you a lot more than they used to. Keep reading to find out why you need to upgrade to EMV for both compliance and cost.
What Is EMV Compliance?
In a nutshell, EMV compliance means that you process credit card payments with approved hardware and software that supports EMV chip cards.
It’s been several years since the big EMV liability shift of 2015. This shift essentially means that if a merchant fails to update their equipment to accept EMV chip cards, they are now fully liable for any fraudulent charges that could have been prevented with a chip card reader. In the past, the card companies and banks bore the weight of all fraudulent charges, but not anymore. Since the payment companies created this global standard, the burden of liability is on the merchant if they don’t update equipment for EMV compliance.
Despite what some posts in the blogosphere claim, this EMV standard isn’t powered by legislative action. So while you aren’t breaking any laws when you swipe a credit card instead of inserting the chip, you are assuming the risk of the transaction.
If you don’t purchase an EMV-enabled card reader, or if your team members swipe an EMV chip card instead of inserting it, you now risk having to eat the cost of the sale, the cost of the goods sold, and any chargeback fees that accompany a fraudulent transaction.
Now that we understand a bit more about risk and compliance let’s take the first step to rectify the situation: accepting EMV cards.
How Do I Accept EMV Chip Cards?
Exactly how you get started with EMV chip card technology will depend on what you currently use to process payments. If you already have an integrated point of sale system with payment processing built in, you likely just need to contact your POS company about updating your equipment. Keep in mind that with an integrated setup, your POS software needs to be EMV compliant as well as the hardware.
If your POS and credit card terminal aren’t linked (a non-integrated approach), you’ll just need to get the hardware — which is your EMV card reader in this case. Check out our article, Do You Really Need An EMV Chip Card Terminal? for a look at your options.
Whether you have an integrated or non-integrated POS system, you might want to consider a “future proof” reader that can also take contactless payments from digital wallets like Apple Pay, Google Pay, and the like. People increasingly use digital wallets for their everyday purchases, so consider your options with this trend in mind. For more on this and other payment methods like it, visit What is NFC And Why Should You Care?
The last option — and this is the easiest — is to get yourself a mobile card reader. These readers are typically the least expensive overall. The reader typically plugs into your phone or device and syncs with a mobile app. Some mobile readers can process multiple ways including a stripe, chip, or NFC (digital wallet) technologies.
|app-name||Payment Depot Mobile||Square||PayPal||Shopify|
Payment Depot Mobile
Type Of Processor
Contactless + Chip Reader
PayPal Chip & Swipe Reader
Shopify Chip & Swipe Reader
SumUp Air Reader
2.6% + $0.10
How Much Does EMV Cost?
Your transaction costs will remain the same whether you swipe a magstripe or dip a card in an EMV terminal. The only thing you need to worry about as far as price is your initial investment into the hardware. When you consider that the cost of the reader removes your fraud liability and the expense of fraudulent charges, it makes sense to upgrade. That being said, mobile chip card readers can cost as little as $25 and a basic EMV terminal for a countertop setup can cost as little as $200 (the price goes up if you need extra features). While some merchant account providers (or POS companies with integrated payment processing) do sometimes offer free hardware if you switch to their services, we encourage you to be wary of these offers. Buying hardware outright is usually the best option. Avoid hardware leases, which can be expensive and sometimes are coupled with non-cancellable contracts, so even if you leave your payment processor, you’re still obligated to pay for the hardware until the lease is up.
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Do I Need To Accept EMV Chip Cards?
The move away from the outdated technology of the magstripe card is not slowing down anytime soon. The EMV chip card represents a more secure way to accept credit cards from your customers. While EMV compliance is far from being a law, you can face penalties and fees if a fraudulent charge were to occur.
It’s true that EMV chips are far from watertight as far as payment security. However, you significantly improve protections over card data during payment processing. In becoming EMV compliant, you also protect your business name and your bottom line by ensuring you are up to date with the latest global standards in payment security.
To explore more options in processing, check out The 5 Best Small Business Credit Card Processing Companies.