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This article was published in the October 2015 issue of STORES Magazine.

Small businesses debate transitioning to EMV

Now that the credit card industry’s deadline for retailers to adopt chip-and-signature cards has arrived, most large merchants have made the move or are close to doing so. But some small retailers are still debating whether EMV — Europay MasterCard Visa — is a viable solution for safeguarding credit card data or just another expense.

The United States is the last bastion of magnetic-stripe credit cards, with chip cards finally proliferating here more than 20 years after they first appeared elsewhere and went on to be widely adopted in Europe, Canada, Latin America and Asia. Some data security experts say the lack of chips on U.S. cards is part of why credit card fraud totals more than $8 billion annually and is on track to reach $10 billion this year.

While backers say fraud could drop precipitously if EMV is adopted quickly, critics point out that the EMV cards that have wiped out as much as 70 percent of fraud elsewhere are chip-and-PIN cards: The cards being issued by most U.S. banks are the less-secure chip-and-signature version.

“Each business has to make its own decision, but a big consideration is how much you stand to lose on any given transaction.”
Mallory Duncan, NRF

Weighing the risks

For many smaller retailers, deciding whether to go with EMV comes down to how much exposure they face under the change in credit card fraud liability rules that took effect on October 1.

As of this month, banks will no longer take responsibility for fraud losses from the use of a counterfeit card if the card is a chip card and the retailer does not have a chip-card reader. For retailers selling big-ticket items that means a potential loss of hundreds or even thousands of dollars on a single transaction. But for a corner coffee shop, the exposure is negligible.

“Each business has to make its own decision, but a big consideration is how much you stand to lose on any given transaction,” says NRF Senior Vice President and General Counsel Mallory Duncan.

“Another factor is the likelihood that a chip card will be counterfeit, which is pretty small at this point. And since counterfeit cards have a pretty limited shelf life, how likely is it that a criminal would try to use it in your type of store? They’re not going to waste it on a cup of coffee.”

“There’s always a little skepticism with any new technology,” says Erica Rios, owner of the Crowned Bird, a women’s apparel shop in Big Spring, Texas. “I’d expect glitches at first because the people who created it don’t know everything yet,”

Rios chose to include EMV when buying a new point-of-sale system recently to avoid the expense of upgrading later, and is convinced that it will help.

“Fraud’s inevitable and sooner or later everyone has a run-in with this problem,” she says. “EMV will definitely protect me a lot more.”

Even though she has the equipment, Rios says she has not yet been able to get it certified and into operation. “We’re … waiting for our merchant service provider to activate it,” she says. “Right now they’re working on the bigger stores first.”

Counterfeit card fraud liability Chart

1 Same applies for all brands.
2 Oct. 2017 for AFD.
3 With or without PIN capabilities.

Graphic courtesy of Heartland Payment Systems via EMV Migration Forum

Unsure about protection

Rios isn’t the only one seeing delays in certification.

“The whole process of getting certified by the financial networks to run EMV transactions is holding everyone up,” says Tom Litchford, NRF vice president of retail technology. “So the same guys who mandated this for retailers have not resourced it to where they can get retailers certified.”

Surveys find that a large number of small businesses are skeptical about EMV.

Software Advice, a division of information technology and research firm Gartner, found that 22 percent of small businesses surveyed had EMV terminals, but 33 percent said EMV was too expensive and 23 percent didn’t believe it was necessary.

A Wells Fargo/Gallup survey found that 29 percent of small businesses planned to implement EMV by October and 34 percent planned to do so by a later date — but 21 percent said they wouldn’t upgrade their systems at all.

Small businesses were split on whether chip cards would give them improved protection from fraud, with 42 percent saying yes and the same number saying no.

That doesn’t mean that small businesses aren’t concerned about preventing card fraud. An American Express survey found that 67 percent of small businesses said that preventing credit card fraud was critical to running their business and 52 percent felt they were more vulnerable than larger retailers.

A study conducted in June by payment technology company Cayan found 52 percent of small businesses would not be EMV-ready by October, and 37 percent had no plans to accept EMV cards. More than half (57 percent) said they would adopt EMV if consumers complained about not being able to use a chip card.

In order to get small businesses on board, some merchant service providers have tried pushing mobile payments systems that are EMV-compatible. But Cayan’s study found that 63 percent of small businesses have no plans to accept mobile payments — almost double the number with no plans to accept EMV.

60 percent of small businesses said they couldn’t bounce back if they were required to cover a fraudulent charge of even $500.

The cost of fraud

In the end, the exposure to fraud losses may be what pushes small businesses to go with EMV, with many saying they can’t afford the risk of having to eat fraudulent transactions. Cayan’s survey found 60 percent of small businesses said they couldn’t bounce back if they were required to cover a fraudulent charge of even $500.

“When we talk to small businesses about the risk of card fraud after October 1, they aren’t highly motivated to upgrade. However, when we start associating a dollar amount to the risk — even $100 lost to covering fraud — they are much more interested,” Cayan CEO Henry Helgeson says. “Our goal is to help small businesses understand the consequences of not upgrading before they risk losing a single dollar to fraud.”



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