Chip Away Credit Card Fraud

Chip Away Credit Card Fraud

New credit cards mean new systems for local merchants ... and a liability shift.


October features a somewhat startling change this year, one that might be scarier than Halloween. Those who issue credit and debit cards, and any businesses that accept these cards for purchases, may be paying for fraudulent charges they were not liable for in the past.

Consumers have been receiving new credit cards that contain a computer chip from EuroPay, MasterCard and Visa (EMV). The chip is intended to provide more security during transactions than the magnetic slip currently in use.

With the change to EVM cards comes a liability shift. Until now, the credit card companies have accepted financial responsibility for fraudulent charges. That means, those who choose to accept cards that are not EVM compliant will be responsible for the fraudulent charges. The credit card companies are no longer liable for these charges. It will fall to the banks, credit unions, and other financial companies who issue credit or debit cards.

Numerous articles about the new credit cards have appeared in various publications and online, and most of the predictions have been dire for small businesses. The leading surveys indicate that less than 50 percent of businesses are committed to getting the new hardware and software needed to do transactions with the new cards.

Lynne Winker is the vice president and marketing officer at United Southern Bank (USB). She said that the bank and a third-party partner have been working with their merchants for almost two years to prepare for this change. They have also encouraged clients who wanted to get equipment for near-field communication, which includes Apple Pay and Google Wallet, to add the EMV equipment too. The bank has upgraded their ATM machines so that they are EMV compliant. However, she said it’s not surprising that some merchants are choosing to keep things as they are.

“Oct. 1 is the deadline for the liability shift, but it’s not a law or a rule that equipment must be upgraded,” Winker said. “Interestingly enough, USB has found it would cost us (USB) more to reissue all of our debit cards than we’ve had in fraud losses,” Winker said.

EVM cards, used in Europe and the United Kingdom for many years, have a specific purpose—to prevent the humongous amount of credit card fraud that occurs almost daily. The United States is the last economic power to accept this payment method. While the cost of credit card fraud is more upward of $10 billion per year, the cost to make this change may be tough for small businesses. After the expense of updating equipment and software, employees need training, all of which can be invasive to the small-business budget.

These cards cost more to produce in the beginning, but the savings come because they last longer than cards with magnetic strips and they have a “flash-updating” capability that means less cost over time. Many consumers are wary of using the new cards because they may not work in the old swipe machines. Some companies like American Express, issued cards early on with the chip and a magnetic strip. There is no extra protection when using these cards because the chip is made useless.

Shawna Sherman, vice president of Commercial Operations at First National Bank of Mount Dora, said they have found many of their clients aren’t even aware the change to chip-enabled cards is coming, but First National Bank of Mount Dora does have a plan in place.

“Businesses don’t have to make this change right now, but we’re making preparations for those who wish to,” Sherman said. “We have a two-sided plan for the EVM cards. We need to be sure our customers have their personal cards, and we’re working with our merchant vendor to ensure our business customers have what they need—new terminals and things like that.”

While there are advantages with the new chip-enabled cards, it still can be stolen. The chip doesn’t keep the thief from using it. Of course, your card also is not protected from online data hacking. Perhaps the most important thing to remember right now is consumers may not be able to use the chip-enable card at every place they shop or dine. The merchant must have the hardware and software needed. Finally, and this will be a big one for many people, it cannot make automatic contactless payments.

Merri Sichko, manager of Jewelry Design in Lady Lake, said their owner installed the machines this summer and provided training for employees. “We’ve decided we need to be more vigilant in checking identification, and we’re collecting more information on our customers to make transactions smoother.”

It’s interesting to note that those who use the plug for their smartphones to include on-site credit or debit card sales can replace those units at a reasonable cost. The stylists at Reflections, a salon in downtown Leesburg, made their choice sometime back. Because they are all independent contractors, they found it too difficult to accept credit and debit cards, so they deal in cash or personal check.

Once again, change is good, and change is bad. If the chip-enabled card reduces the staggering amount of fraud committed each year, it will save billions of dollars. However, there is the cost to the small business, though only in the thousands, it could be too much for their overburdened budgets.