By William L. Stunkel, CPA | Holsinger PC

EMV (which stands for Europay, MasterCard and Visa) is the name of the new industry standard for authenticating credit card transactions by way of an embedded chip. EMV is a new security feature designed to make it harder to steal credit card information and use it without having the actual credit card present. The days of swiping plastic were thought to be over with the introduction of these chip cards.

The fact that a new security standard has come out makes sense at face value. According to a recent survey by the Federal Reserve Bank of Boston, credit card and debit card use has been on the rise compared with cash and check use from 2009 to 2013. Electronic payments combine to account for more than 50 percent of purchases compared with cash and checks. This means that for many business owners, particularly retail stores, electronic payments are increasing. Since increased electronic payments leads to the possibility of more electronic payment fraud, credit card companies are increasing security.

But a switch to EMV won’t be painless.

What Does EMV Mean for Businesses?

To incentivize adoption of the technology, the credit card issuers gave merchants an ultimatum: implement EMV technology or certain types of fraud will come out of the merchant’s pocket. This could mean higher costs for businesses. Since the deadline for the switch was back on Oct. 1, 2015, fraud risk is now the responsibility of the party with the lowest security measures implemented if a card is present for a transaction. So, if a retailer doesn’t have the newer card processing equipment, the retailer would be responsible for covering the cost of fraud when allowing a card with an EMV chip to be used. On the other hand, if a card doesn’t have a chip, the card issuer is liable rather than the business.

If a business does not physically handle a customer’s card (such as with web-based businesses), credit card payments are not subject to the same rules for liability.

For many retail stores, the cost to avoid this liability will be the cost of a new terminal. These can range from $200 to $800-plus, depending on the features desired. If a business uses the Square processing network, the EMV chip reader is only $49.

As with many business decisions, paying at the front end will ultimately save money on the back end. While some businesses will struggle to justify a cash outlay that is purely overhead, the comparison to possible costs favors paying now rather than risk paying more later. If a fraudulent customer walks off with merchandise and sticks the merchant with the loss of the believed sale, knowing that the loss could have been prevented will just add insult to financial injury.

The Bottom Line

The key take away is that if your business has not gotten an updated credit card processing terminal, it needs to start planning to make an investment in the new technology. As more consumers are issued cards with EMV chips, more consumers will expect to be able to pay by “dipping” their chip cards rather than swiping. In the end, hopefully both small businesses and consumers will benefit if fraudulent transactions are reduced.

William L. Stunkel, CPA, is director of small business services with Holsinger PC in Wexford, Pa. and serves on the CPA Image Enhancement Committee.