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The 4 Things Your Business Needs to Know About Chip (EMV) Cards

The magnetic stripe on the back of your credit card is hardly new technology. In fact, it’s been around for decades. And, a lot has changed in the last four years—not to mention the last four decades. We don’t still listen to 8-track players. We don’t still watch VHS tapes. And, we don’t still carry huge cell phones around. Well, wait. Have you seen the size of the iPhone 6+? Nevermind.

But, when it comes to our credit cards, very little has changed. That is, until now.

As you may already be aware, the United States is currently transitioning to chip-enabled (or EMV) credit and debit cards. Why? Well, the change is mostly to prevent fraud—chip cards are more secure than the cards we currently carry in our wallets. However, that fraud prevention is only fully realized when the business has the right equipment to correctly read these new cards.

Here are the four things your business needs to know about chip-enabled cards.

How do chip cards work?

Chip cards store the cardholder’s account information on a computer chip located on the front of the card. Instead of swiping the card to authorize a transaction, the cardholder inserts their card into a slot in the merchant’s point-of-sale equipment. The terminal (or PIN Pad) then reads the information from the chip and authorizes the transaction.

The cardholder will insert the chip (above) into the merchant's terminal.

The cardholder will insert the chip into the merchant’s terminal.

How do chip cards prevent fraud?

The new technology harnessed in these chip cards actually increases their security because of what’s called “dynamic authentication.” When the machine reads the card, the chip generates a one-time code specific to that individual transaction, which essentially masks the 16-digit account number.

This means that—if the transaction information was somehow stolen (ala through a data breach similar to recent occurrences with Home Depot and Target)—it should be virtually impossible for criminals to produce counterfeit cards using that stolen transaction information.

Does my business have to do anything?

Honestly, no. You don’t. Chip-enabled cards are also being issued with magnetic stripes on the back, which means that any existing processing equipment you own should continue to work just fine. However, there’s a pretty compelling reason why you should strongly consider upgrading your equipment to accept these new cards.

To accept chip (EMV) cards, point-of-sale merchants will need to upgrade their processing equipment.

To accept chip (EMV) cards, point-of-sale merchants will need to upgrade their processing equipment.

In October of this year, liability for card-present counterfeit transactions shifts from the card issuer to the merchant. What does this mean? Well, if your business processes a transaction by swiping (instead of reading the chip) and the card ends up being a counterfeit, your business would be liable for the fraudulent transaction. Not only would you incur the loss from the goods/services purchased in the fraudulent transaction, but you’d also owe the transaction amount to the card issuer.

How do I set up my business to accept chip cards?

Most merchant services providers, including Central National Bank, currently have the capability to provide you with a chip-enabled credit card terminal and PIN pad. These machines can cost you anywhere from $250 to $350, depending on the type of machine and added features. For most businesses who don’t need a sophisticated point-of-sale system, we recommend purchasing a Verifone VX 520 or an Ingenico ICT 220.

The transition to chip-enabled cards is currently just one of many changes impacting the payments landscape. While credit cards have previously gone four decades without much change, with the heralded announcement of Apple Pay and the expected introduction of other mobile wallets, the way we make and receive payments could change significantly over the next few years.

Bryan is a treasury management specialist and the director of marketing at Central National Bank. He enjoys running, reading (anything by Malcolm Gladwell), binge-watching House of Cards on Netflix, volunteering and playing the trumpet.

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