Get Ready For Chip-Embedded Credit Card Transactions
by Matt Tomlinson
With Visa, MasterCard, American Express and Discover all transitioning to chip cards, credit card security improves for card holders and businesses. You will need to invest in a new card reader, though, to handle the technology. And you also need to be aware of a liability shift.
A chip card looks just like the magnetic-stripe credit and debit cards already have in your wallet. The difference lies in a tiny, encrypted computer chip embedded in the card. The chip stores payment data and allows cardholders to benefit from two powerful technologies: encryption and tokenization. Encryption makes it much harder for card information to be stolen during the transaction, and tokenization ensures that any stolen payment information can’t be reused by criminals in the future.
In contrast, magnetic stripe cards don’t encrypt or tokenize payment information. For years, criminals have been able to steal credit card data by tampering with merchants’ point of sale equipment or hacking into their point of sale software. Chip cards and readers render these kinds of attacks ineffective. There’s a short video you can watch to understand the basics of chip card acceptance. You can find it here.
Why should your rental business accept chip cards? Let’s start with the Liability Shift: In October, there will be a shift in who is liable for certain types of fraud on card-present transactions. Starting in October, if a merchant is not accepting chip cards and PINs at the point of sale, some fraud costs that used to be paid by banks will be the merchant’s responsibility instead. The common term for this rule change is the “liability shift,” because the liability for some fraud costs is shifting from banks to merchants who don’t accept chip cards.
To make the liability shift clearer, here’s an example of how fraud costs work today. Say your personal Visa card information is stolen by a criminal. The criminal makes a counterfeit copy of your card and uses it to buy a nice jacket for $300. You notice the $300 charge on your statement and tell your bank that you didn’t make that purchase. Your bank refunds you the $300 out of their own pocket. The store that sold the jacket doesn’t even realize that fraud has taken place.
Now imagine the same situation, except it’s after the liability shift and your bank has issued you a Visa card with a chip. The criminal can’t counterfeit the chip itself, but he can still make a counterfeit of your card’s magnetic stripe (remember that all chip cards are still being issued with magnetic stripes for the time being). The criminal swipes his counterfeit card at a store that isn’t accepting chip cards yet, and the transaction works. You notify your bank, as before, and the bank reimburses you. Here’s the big difference: instead of the bank absorbing the $300 loss as before, the bank can come after the store for that money because of the liability shift. Because the fraudulent transaction would have been impossible if the store accepted chip cards, the store is responsible for paying the $300 to reimburse the cardholder.
Also, consider your customers’ peace of mind: Your customers will remain loyal after seeing that you are doing everything in your power to keep their credit card information secure.
To accept chip cards, you need equipment and software that are compatible with chip cards. Many stand-alone terminals in use today are outdated and don’t have a chip card reader. Other terminals have a chip card reader built in, but don’t have chip card software available. In both of these situations, the business owner will need to buy a new terminal that is ready to accept chip cards. Some newer terminals have a chip card slot and chip card software available. In that case, the merchant only needs to contact your processor and arrange to have chip card software loaded on their terminal. Since some cardholders may have to type in a PIN number when using their chip card, you may find it convenient to add a customer-facing PIN pad to your chip card-ready terminal.
How will your customers use their chip cards to pay? Instead of swiping a chip card, your customer will insert the card into a slot and leave it there until your transaction is complete.
This allows the chip card to have a three-way conversation with your POS software and your customer’s bank, with every party checking to make sure nothing fishy is going on.
Most of the rest of the world is already using chip cards, including Canada and most of Europe, Latin America and Asia. The U.S. is joining the rest of the world now for many reasons, including the mounting costs of payment fraud and the falling costs of issuing chip cards, as well as the recent high-profile data breaches where huge numbers of consumer credit cards were stolen from major U.S. retailers. Adopting this new standard makes financial sense and will make shopping in the U.S. much safer.
Matt Tomlinson is with Wind River Financial. Matt’s email is mtomlinson@windriverfinancial.com; direct phone is (608)441-7362.
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