What is a Credit Card EMV?

The 2015 EMV liability change completely reshaped how fraud costs are handled in the payment world. Banks used to cover most of the losses after criminals used fake cards at stores. But now the liability laws work quite a bit differently and the changes affect business owners.

The liability part is always the biggest worry for merchants - who ends up paying when fraud happens in your store. If somebody uses a fake chip card at your old magnetic-stripe terminal you're the one who gets stuck with that bill. The bank doesn't have to pay anything and you're left covering the entire loss. That could mean thousands of dollars lost from one single fraudulent transaction.

But once you upgrade your system to accept EMV chip cards you get strong protection against counterfeit fraud. The bank steps back in to cover those losses, returning to the old setup where they paid the costs. You do need to run the cards though. Even with a brand-new EMV-capable terminal you still have to insert the chip and wait for the authorization to finish.

This liability protection only covers counterfeit fraud cases. You're still responsible for other types of payment disputes. Mistakes in processing and other technical problems also land on you as the merchant.

Small businesses could face financial losses when they skip this upgrade. I worked with one merchant who lost more than $8,000 in a single month because criminals kept targeting his store with fake chip cards. His terminal was so old that it couldn't read the chip data so he had to cover every fraudulent transaction that went through. Once he saw how much money he was losing he finally upgraded his equipment. Most business owners who delay this upgrade usually find out the expensive way that EMV compliance isn't optional anymore - it's a must for keeping your business safe.

EMV cards have one big weakness that most businesses forget. The chip does a great job at stopping counterfeit card fraud. But it won't do anything to protect you from friendly fraud - those situations where customers claim they never authorized an order that they actually did make.

The chip on the card gives you a new transaction code each time a customer buys something. That code is proof that a real physical card was present during the sale - this gives you some evidence to work with when disputes come up later. Of course there's still one big limitation with chip technology - it can't actually prove that the cardholder was the person who used the card. Maybe another person in their family has a hold of the card and maybe the customer is completely lying about the whole transaction.

Fraudulent chargebacks like these have become a big headache for businesses in just about every industry. Fortunately you can protect your business from these bogus claims pretty easily. Records of each transaction give you a much better shot at winning when these disputes inevitably pop up. Proof of delivery is another tool in your arsenal - it shows that your customer received just what they ordered and paid for. Savvy business owners have also started adding extra verification steps to their checkout process and it helps when they have to fight these claims.

EMV technology actually does a pretty effective job at solving one big problem - it makes any stolen card data completely worthless to criminals who want to create fake cards with it. Most merchants believe that the chip will be their answer against every type of fraud. But that assumption is probably going to leave them pretty disappointed.

If your business doesn't accept EMV payments, you need to know what you're putting on the line. The biggest issue is the liability - you'll be personally responsible for any counterfeit fraud losses that happen at your location. When a customer disputes a fraudulent charge and you didn't use an EMV reader to process it, you automatically lose that chargeback dispute. There's just no way to win that fight.

Your payment processor is going to find these problems pretty fast when the chargebacks start piling up on your account. Once they see the pattern, you can expect them to bump up your processing rates or tack on extra fees to your merchant account as a way to offset their exposure. The most frustrating part is that some processors will actually pull the plug on your entire account if the fraudulent transactions get too out of control (this tends to leave most business owners feeling helpless - even when they think they're doing everything right).

Another point worth mentioning - criminals actually network with one another and share information about which businesses make for easy targets. Once word gets around that your store is still running those old swipe-only terminals you'll probably start seeing more fraudulent activity headed your way. Card fraudsters hunt for businesses that don't have chip readers because they know that their counterfeit cards will work much better at those locations.

Your customers have become used to inserting their chip cards just about everywhere by now. When they can't use their chip at your business, they see it right away. Some will actually walk out and head to the competitor down the street basically because they feel safer there. The actual security benefits matter less - sometimes they just want to feel like you're making an effort to protect their payment information.

Chip technology has changed how businesses and consumers think about payment security and it's been interesting to watch this develop. Before chip cards came along, cardholders didn't see how easy it was for criminals to steal their card information. The payment industry introduced these chip-based cards everywhere and it turned out to be one of the strongest moves they've made. I see the results in the data all the time - in-store fraud has dropped quite a bit since these little chips became standard at checkout counters everywhere.

This whole change makes one point pretty obvious about fraud prevention - you basically can't use one single answer and think that's enough. Those same chips that work great at the store are useless for online shopping and they put businesses in a tough spot because they have to protect both kinds of payments - this protection gap has pushed the entire payment industry to develop multiple layers of security and the end result is a stronger system for everyone involved.

The limitation with chip cards is pretty simple - they can only do their job during face-to-face transactions where a terminal reads the chip. Online purchases are different because they skip the chip altogether and still depend on the same card number and security code that old magnetic-stripe cards have always used - this puts merchants in a tight spot where they have to buy completely separate fraud-prevention tools for their e-commerce operations like address-verification systems and security-code checks and authentication services. What makes the situation even harder is that card-not-present fraud has been rising as chip technology drove down in-store fraud and it means that online protection now matters just as much as the measures used in person.

The smartest merchants lately know that online and in-store fraud prevention are two equal challenges that call for very different security strategies.