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EMV Update: The Good, The Bad and the Costly

Since their introduction in the mid-1980s, EMV credit cards have proven incredibly effective at preventing in-store credit card fraud. Although EMV chip cards come with magnetic stripes that work on traditional card readers, they also come equipped with embedded security chips that only work on EMV-ready terminals.

These chips are difficult to clone; and in order to make an in-store purchase, the card must be physically present.

Already the standard worldwide, EMV chip cards are quickly gaining traction here in the United States — the last major market to accept these more secure cards. On Oct. 1, 2015, new rules went into effect that place greater liability on merchants and banks that aren't EMV-compliant:

  • When customers use chip cards on older terminals, the merchant is responsible for any fraudulent losses that might occur.
  • When customers use older plastic on EMV terminals, the card-issuing bank is responsible for those losses.

Because of this new imposed liability shift, there is tremendous incentive to make the switch.

How has the U.S. retail industry adjusted to these changes over this past year since the EMV deadline last October?

EMV Adoption — Both Inconsistent and Worrying

The EMV roll-out hasn't happened universally across the board. In fact, total penetration of this more secure payment standard isn't even close to nearing 100 percent:

  • The banks have done a better job of making the transition, with roughly 75 percent of all card issuers sending newer forms of plastic to their customers.
  • Merchant adoption has been considerably slower. Some sources say that 30 percent of retailers have made the switch. Other estimates put that number as low as 10 percent.

One explanation behind this slow adoption rate is the cost. In order to accept chip cards, retailers have to replace their older terminals with newer readers that are EMV capable. Nationwide, these EMV equipment upgrades could cost merchants an estimated $2.5 Billion.

Another reason why adoption has been so slow is because the new EMV rules aren't mandatory yet. You might pay more fees by not switching — but there is no law that you have to update your payment processing equipment.

However, have these new rules helped make shopping safer?

EMV Security and Fraudulent Activity

One year in is too early to tell what impact the chip cards have had on traditional retail shopping in the U.S. Only 15 to 20 percent of in-store transactions use EMV chip cards (on both sides of the transaction).

Yet, every other major market that has adopted EMV has seen in-store fraud decrease substantially. For example, Canada witnessed a 54 percent reduction after embracing EMV chip cards, and the U.K. saw retail fraud drop nearly 60 percent.

However, in every major market that has adopted EMV chip cards, card-not-present (CNP) fraudulent activity has also skyrocketed. Canada, for example, saw online fraud jump 133 percent after making the switch.

The reason behind this phenomenon is simple. As in-store fraud becomes more difficult, criminals are moving their operations online where chip cards offer little extra protection.

This trend was visible in the U.S. — even before the EMV deadline arrived.

Throughout 2015, CNP fraudulent attempts increased 30 percent. Just days before the deadline, the news reported a wave of new phishing attacks directed at EMV chip cards. What’s more, during last year’s holiday shopping season, online fraudulent activity increased 8 percent.

How to Keep Your Customers and Business Safe

It might be a while before accurate data about in-store fraud emerges. However, it appears that the mere specter of EMV adoption has generated headaches for innocent bystanders — especially e-Commerce merchants.

  • If you operate a retail business and haven't switched to EMV-enabled terminals, contact us today to learn how we can help. We can provide your business with a new EMV terminal for free.
  • If you generate sales online or via phone, Click Here to learn how we can make your CNP transactions more secure also.

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