iGeneration Banking Solutions

Do I need to buy a credit card chip reader?

If you own a business, you've probably received the letter from your bank or credit card processor by now. They say you need a new credit card machine. The letter sounded scary. In short, card processing companies and their salespeople are telling customers that you will be liable for chargebacks if you don't get the new card reader that works with chips. Is this true? What's in it for them? Can I really be forced to buy new equipment if my old stuff works just fine? Read on to find out.

First, let's cover the facts. In the United States all major credit card companies (Visa, Mastercard, American Express, etc) have mandated a "shift of liability" that will take effect in October, 2015. Each agreement is worded slightly differently but basically they state that the business accepting credit card payments will be responsible for funding charge back disputes - if the customer has a credit card containing a security chip and the business does not accept the payment with a device that reads the chip. Wow! That sounds REALLY scary. How can this be true? Let's break it down:

  1. The customer must have a credit card with a chip. In the US, there are currently a little less than 30% of all cards that contain EMV (enhanced merchant verification) chips. The issuing banks are behind. If the card doesn't have a chip, there is no difference in the process from how it is today.
  2. You must receive a chargeback (dispute) for this to even matter. How many chargebacks does your business receive? Do you know your customers? Do you meet with them face to face? If so, chances are WAY less this will be a factor.
  3. This does not apply to Internet or telephone sales. There's no way to read a chip when the customer is at one location (say at home) and your web store is in another state. Internet merchants typically have a higher rate already (because of the higher risk). If most of your sales are online, you are not impacted.

Whew! None of this affects me so I can just skip the new hardware and tell my bank rep to hit the road right?

Well, technically yes. However, there are added advantages to updating your technology. Customers love convenience. The better the experience, the more likely they'll return. If you get a new card reader that supports contactless payment, like Apple Pay or Google Wallet, you'll get the added benefit of a MUCH more convenient checkout process. Your customers will love you for it.

Why are the card companies trying to scare people into buying new credit card terminals? In short, credit card fraud is a massive problem. In 2013, losses totaled over Eleven Billion dollars. Card issuers, banks and merchants get to pay for the losses. Magnetic strips on the back of credit cards are a very old technology and it's very easy to hack or illegally obtain someone's card information with a $5 device that can clone your credit card. EMV (chipped) cards are more secure, which equals less fraud. If the banks get you to start using EMV card terminals, both they and you will pay less in losses.

Our best advice is to consider the type of customers and sales your business makes. If the risk factors mentioned above fit, then you should be more motivated to change. If you never have chargebacks or know most of your customers personally, you can probably wait a bit and negotiate to receive some new hardware at a discounted rate on your terms.

We're glad to help you figure out a solution that works for your business. Give us a call or drop us a note.

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