Gearing up for the first Holiday Season with EMV Guidelines: What Merchants Need to Know
As the first holiday season, since the new EMV guidelines went into effect, fast approaches, merchants are faced with a potential increase in liability while many consumers celebrate increased credit card fraud protection. How is this possible?
Well for starters, the much hyped EMV chip cards are making it more difficult for crooks to use counterfeit cards during face-to-face purchases. For consumers the added protection could not come sooner. A recent Javelin Strategy report states that 31 million U.S. consumers experienced credit card related data breaches in 2014, which is three times the amount in 2013. For businesses, however, the impact of the new EMV guidelines is more complicated.
The Other Side of EMV in America
Although the majority of recent media coverage focused on the consumer’s viewpoint, there is another vital piece of the EMV puzzle missing from news reports. The major credit card brands (Visa, MasterCard, AMEX and Discover) are indeed the architects of the October 1st EMV deadline, however, they are also behind the harsh penalty now in effect against merchants that resist the changes. After October 1st 2015, any business that has not upgraded to an EMV compliant credit card terminal system and experiences certain types of card fraud- will now be directly responsible for the associated monetary losses.
The new credit card fraud policy or ‘liability shift’ as it has been dubbed by the payment industry, alleviates much of the pressure previously faced by credit card brands and banks; until now they alone had to cover the financial losses associated with credit card fraud. To put things in perspective: The local florist, the shoe store down the road, the donut shop you stopped at on the way to the gym this morning- or any other business you regularly frequent is now on the hook for the monetary damages crooks cause within their establishments.
Smart Chips… Big Headache
As you can imagine the financial leverage behind major credit card companies is immense, and what the big cards want- the big cards get. If you are a business owner and need to accept credit cards as payment, you play by their rules. The liability shift is likely designed to light a fire under merchants (both big and small) to rush out and upgrade their terminals with EMV technology.
For large merchant corporations, the installation of hundreds or even thousands of EMV card terminals is manageable. In fact, Target has already approved a $100 million dollar investment for EMV upgrades.Even the major merchants, however, must be feeling that the timing of the October deadline could not come at a worse time. After all, it’s a well known fact that the last quarter of each year (Q4) provides the bulk sales revenue for most merchants. In addition, there are other EMV related complications aside from the installation and technical requirements, including the necessary learning curve (for both employees and customers) in using the new terminals.
The exact magnitude of the upcoming smart card disruption during the holidays has yet to be seen. In Canada for example, where EMV cards were introduced a few years ago, consumers often forgot their cards inside the new terminals and consequently lost them.The reason for this mishap is due to the fact that unlike magnetic-stripe cards that are never let out of your hand during the “swiping” motion, smart cards must be placed in an EMV terminal during the entire authorization process. EMV authorizations take an average of fifteen seconds, and while that may not sound like a very long time- try counting from 0-15 and you’ll realize that it’s long enough to easily forget a card at the checkout. Unfortunately for many Americans, forgetting and losing a credit card during the middle of the 2015 holiday season will prove a harsh introduction to the new EMV technology.
Furthermore, even without adding lost and forgotten cards into the mix, the checkout process will nonetheless be severely affected by the longer EMV authorization time frame. For example: If you are a single register merchant and process a modest 400 credit card transactions per day, factor in the 15-20 second EMV authorization time, and you are now facing a 2 hour delay per day- on just one register.
EMV Comes to Main Street. U.S.A
With regards to small and mid-sized merchants, an ultimatum from credit card companies demanding a major hardware upgrade the month before Black Friday is an inconvenience to say the least. Consider the following scenario: Merchant X owns half a dozen shoe stores and generates the majority of his annual revenue between Halloween and New Year’s Day. Each of his stores has 6 to 8 registers. At 779 dollars for each terminal plus training costs, Merchant X is facing a 40k hardware investment during the busiest time of the year. This is the dilemma currently facing thousands of merchants across the U.S.For a small or mid-sized business, that is still in the delicate recovery stage post-recession, an added EMV related upgrade expense during the holidays could be paralyzing. One alternative is to completely ignore or postpone the EMV upgrade. This can be a financially dangerous choice, however, especially with the new fraud liabilities hanging perilously overhead.
What can a merchant do to prepare?
There is no denying the EMV smart chip technology provides substantially stronger fraud protection at point-of-sale (POS) than the old magnetic-stripe cards. They are also harder to counterfeit. Smart chips effectively reinforce vulnerabilities within the payment cycle that until now have been overlooked. The EMV terminals may be an expensive pill to swallow initially for your company, but the long term benefit to your customers and your business are undeniable.
1. Learn to Love the Chips
The most immediate benefit you’ll experience when switching to EMV compliant processing, is no longer being vulnerable to the “liability shift” penalties. This benefit on its own, is financially well worth the switch. As an added benefit, when your customers see state-of-the-art EMV technology running in your business, they will undoubtedly have greater peace of mind knowing your business takes consumer security matters seriously.
2. Get Creative on Logistics
If you are a company with the flexibility to add or open additional checkout lanes, this option could drastically improve EMV checkout time for your shoppers. Also, consider promoting exclusive offers or “door busters” during non-rush hours as another effective solution to the expected EMV checkout congestion.
3. Keep your Customers out of your Business (sort of…)
The EMV holiday disruption is a byproduct of a beneficial (and much overdue) technology upgrade to American commerce. There are still many other profitable avenues for conducting merchant transactions, however, that are not disrupted by the new EMV guidelines. Online business, phone orders, even mail-order are powerful ways to ease the anticipated EMV checkout bottleneck. Creative email campaigns, proactive sales calls to existing customers, and holiday mailers / catalogs- can greatly improve the holiday shopping experience for your customers and keep things moving briskly at the checkout line.
4. Communicate with your People (early)
The sooner your employees are notified about the change, the easier the transition will be. Train and discuss EMV with your staff early. Explain if or when your company will be making the EMV switch and how it will impact them directly. In other words: Training your cashiers on the EMV authorization time frame the day before Christmas is not a good idea. Also, don’t forget about seasonal workers, they may arrive at your business much later in the shopping season- but they also need to be familiar with EMV.
5. Stick with the Old Guard
Look to reputable and established credit card processors that have been around for a long time to conduct your merchant services. Keep in mind that it’s not easy to stick around in the ultra-competitive payment processing industry; those that have survived have done so by effectively evolving and innovating. As a client, you benefit directly from those technical innovations with greater usability and faster checkout time.
In conclusion, EMV has arrived in the U.S. and regardless of how Americans feel about smart chips- they are here to stay. Talk to your customers candidly about EMV and why the arrival of chip cards is happening this season. Confused or annoyed customers assuming that the EMV holiday disruption is unique to your company, or the result of inept employees at your business can wreak havoc on your merchant reputation.