Besides being the first nation to successfully land on the moon and having the world’s largest economy, the United States also takes the lead in some unfortunate categories, including worldwide credit card fraud. The United States is the only country that continues to see year-over-year growth in this area. Why, you may ask? The United States is the only developed country that has relied almost exclusively on issuing credit and debit cards with magnetic stripe technology (a.k.a. that little black stripe on the back of your cards), a standard the most of the world moved away from years ago.
Most developed countries primarily use smartcard technology for POS (Point of sale) transactions. Embedding a little microchip on each card enables a superior level of fraud protection.
Via a tiny microprocessor housed directly on the payment card, EMV technology (short for Europay, Mastercard and Visa) creates and encrypts a unique code for each POS transaction. Unlike the magnetic stripes, this data can never be used again and wouldn’t work even if accessed by cyber criminals. The code is useless upon completion of the transaction.
Why is this technology better? As the rest of Europe and Canada have already proven, EMV systems are much less vulnerable to fraudulent attacks. No useful information is transmitted during a transaction that hackers can steal.
Adopted in 2003 – the same year that iTunes was born – the UK was among the first to adopt EMV technology. Since that time, the country has seen a startling 70 percent reduction in counterfeit fraud.
The U.S. has seen a number of large-scale fraud and data breaches in recent years:
- The number of security incidents in the United States reached an all-time high in 2014, increasing 19 percent over the previous year.
- In December 2013, Target announced that hackers stole payment-card info from 40 million customers.
- Home Depot announced a breach the exposed 36 million users’ payment card info in 2013.
The U.S. has become a favorite target for fraudsters, but that will change in October 2015, when the U.S. will adopt the Global POS Liability Shift Policy.
How does this affect my business?
This means that after October 1, 2015, if a business in the United States does not accept chip-and-PIN enabled cards for POS transactions, it may be financially responsible for any fraudulent activities or chargebacks that occur. For example, imagine Johnny Licks wants to use his chip card at an ice cream shop and is instead forced to swipe the card using the magnetic stripe because the store doesn’t support EMV technology. The following week, he finds upwards of $1,000 in fraudulent purchases that he reports immediately. The ice cream shop itself – not Mr. Licks, not the payment company and not the bank – is responsible for those charges.
Traditionally, banks and card issuers are responsible for these breaches, but the efficacy of EMV terminals has proven so successful worldwide, that financial institutions are putting all their faith into the technology.
For merchants, they only need to look to Europe and Canada as guiding examples. Payment providers have been helping our neighbors do this successfully for years. The price of inaction is very steep.
“I’m never shopping there again!”
The hassle of managing a hacked card and going through the motions of correcting the issue is painful. Poor quality in customer service (read: unsecure credit card processing) is one of the top three influences on reputation. There goes all your repeat business.
“They only accept cash.”
Many people don’t carry cash and will ditch a purchase if the retailer only accepts cash payment. Consumers love options, whether it’s items on a menu, picture sizes for a TV, or payment options when making a purchase. EMV technology gives customer’s more options, including the safest one available.
A positive experience = confidence and customer loyalty. The reality is that nothing turns consumers off more than the vulnerability of their financial information. On the flip side, there’s nothing better than having the peace of mind that comes from the gold-standard of card protection – globally. By adopting EMV payment systems, the United States can happily mingle with the rest of the world. Once EMV terminals are adopted and generalized by U.S. merchants, Canadians and Europeans will be able to use their chip cards safely and without issue in the United States.
This article is for informational purposes only and it is not intended to provide you with any personalized financial, marketing, accounting or tax advice. Neither Moneris Solutions Corporation (Moneris) nor any of its affiliates shall be liable for any direct, indirect, incidental, consequential or punitive damages arising out of use of any of the information contained in this article. Neither Moneris nor any of its affiliates warrant or make any representation regarding the use or the results of the use of the information, content and materials contained in this article in terms of their correctness, accuracy, reliability or otherwise.