Credit is changing
Businesses large and small- from Target to your local taco stand- are quickly changing the way they process credit.
This stems in part from a long-time, 8.6 billion dollar issue- credit card fraud. The United States suffers huge losses on stolen card info (almost half the world total), as does small business; 63% of small businesses report some fraud each year, at an average of 7% of all transactions. Since the restaurant industry is “pulverized”- primarily made up of small businesses- fraud is certainly an issue for the restaurant community.
The big reason that credit is changing is an upcoming shift in how major credit card companies treat liability. On October 1st, 2015, Visa and MasterCard- the two largest payment networks in the world- will create a new incentive for businesses to move to chip technology. If businesses don’t have the equipment to process a “chip” card, they will be liable for any fraud, and will pay for it directly. Discover and American Express will follow close behind.
WHAT IS THE CHIP CARD?
You may have heard of the chip card before- it’s a safer alternative to the swipe-and-sign card we currently use. It uses a small square chip on the front of the credit card equipped with EMV technology (named for its proponents- EuroPay, MasterCard, and Visa) that generates a unique electronic code at every transaction. The older magnetic strip, which uses the same code each time, can be easily swiped once and copied. Even if a code from a chip card is stolen, it’s impossible to replicate and reuse that information because there's a new code for every transaction. This makes the chip a much more secure option.
Most of Europe, Canada, and Asia Canada have already started to switch. Great Britain moved to the chip in 2004, and saw a 32.5% reduction in fraud by 2011- and Canada has seen a 73% reduction since it’s 2008 switch. According to Visa, an astounding 62% of international credit transactions already use chip technology. But it’s not just Europe. In the United States, 120 million cardholders use a hybrid card (with both a magnetic stripe and a chip)- and Visa expects to have 575 million chip cards worldwide by the end of 2015.
That projection largely rests on the shift MasterCard and Visa will make in October, just a few months from now. If a business wants fraud protection, they must be able to read the chip for their customers. Chip cards, unfortunately, need a different type of technology at the register. Instead of swiping the card, it’s inserted into a terminal underneath the pin pad at checkout. The cost of the new equipment depends on the company you work with, but it’s only about $150-$450 per machine. If you already use a mobile reader, it’s about $30.
After October 1st, if your business doesn’t have a chip reader, liability (and losses from any fraud) will fall directly on you. If a customer doesn’t have a chip card, on the other hand, liability will fall on the bank that failed to issue an updated card. Consumers will never be responsible for fraud in any case- as per U.S. statute.
You may have already seen the new readers at places like Wal-Mart, Target, and Costco. But how will this impact the small-business-driven restaurant industry? Right now, small businesses are less likely to switch, and more than 7 in 10 restaurants are “single-unit operations”. In fact, according to a Wells Fargo study completed last month, only 49% of businesses know about the liability shift at all, while only 31% have POS systems that can read chip cards. What’s even more alarming is that, according to Intuit, 85% of small businesses that don't have a reader don’t know what financial and legal liability they’ll be facing, or if they can handle those costs.
The National Restaurant Association (NRA) worries that the industry will take longer to switch than others because fraud is seen as less common. Legally, there is no mandate to switch- but any business that can’t read the chip won’t be protected from fraud. If you haven't considered implementing chip-reading technology, you definitely should.
WHAT'S THE NEXT STEP?
The NRA has a few recommendations for restaurant owners (abridged from the NRA website):
1) Monitor EMV timelines. Card brand websites, payment processors, and point-of-sale terminal providers can help operators stay up to date on EMV developments.
2) Create an acceptance strategy. Examine payments equipment and software to determine what changes will be required to accept EMV transactions. Talk with payment processors or POS provider to figure out how to best accommodate necessary upgrades. Determine an EMV acceptance model, including if you will require a PIN, and if you will opt to waive the need for a signature for tickets under $25 or $50, for example. Outline a rollout plan that stipulates the implementation schedule, budget, and other parameters.
3) Train staff. As the EMV transition unfolds, operators should ensure their employees are educated on how to accept chip and PIN or chip and signature transactions, and are prepared to answer customer questions on the new technology.
1. http://blogs.wsj.com/corporate-intelligence/2014/02/06/october-2015-the-end-of-the-swipe-and-sign-credit-card/2. http://www.creditcards.com/credit-card-news/emv-faq-chip-cards-answers-1264.php3. http://www.huffingtonpost.com/creditcardscom/the-dirty-little-secret-y_b_5572081.html4. http://www.businessinsider.com/chip-and-pin-credit-card-changeover-in-2015-2014-2#ixzz3jCLsb9pT5. http://www.usatoday.com/story/tech/columnist/talkingtech/2014/12/01/changes-coming-to-credit-card-readers-for-small-merchants/18470643/6. http://www.restaurant.org/Downloads/PDFs/News-Research/research/Factbook2015_LetterSize-FINAL.pdf7. http://articles.bplans.com/know-your-industry-before-you-start-your-business/8. http://www.merchantmaverick.com/faq-buying-emv-chip-card-terminal/9. http://www.paymentsleader.com/will-retailers-be-ready-for-emv-by-oct-2015/#sthash.nxrlImlY.dpuf10. http://www.cnbc.com/2015/07/30/many-us-retailers-not-ready-for-fraud-proof-cards.html11. http://www.smartcardalliance.org/with-emv-chip-migration-on-track-u-s-payments-industry-looks-ahead-to-mobile-ecommmerce-and-tokenization-at-smart-card-alliance-2015-payments-summit/