The United States' switch over to chip cards is moving along steadily. The Payments Security Task Force projects that 98 percent of cards will be chip-enabled by the end of 2017. And Square data supports this trajectory. In December 2015, roughly 53 percent of cards processed on Square Stand were EMV chip cards, up from 12 percent last January.
The fact that soon we'll all have chip cards means big things for both consumers and merchants. Here's an overview of everything you need to know about the transition to chip cards, and the actions you need to take as a small or mid-sized business.
What are chip cards?
Let's start with the basics. What's the difference between a chip-enabled card and a magnetic-stripe card? First, there's the way they look. Chip cards contain a tiny computer chip in the corner (in addition to a magstripe on the back). Magstripe cards, on the other hand, just contain a magnetic stripe. Second (and more important), there are major security differences between the technologies on the two types of cards. With enhanced technology to prevent against counterfeiting, chip cards are a far more secure way to pay.
What does EMV stand for?
You'll often hear the term EMV alongside chip cards. EMV is a rather esoteric acronym that stands for Europay, MasterCard, Visa. It's named after these institutions because they're the ones who set the standard for the security protocols involved in chip card transactions.
Why are we getting rid of magstripe cards?
Magstripe cards are woefully outdated. They've been around for decades. To put in perspective how antiquated they are, magstripe cards run on the same technology as cassette tapes. That makes them extremely susceptible to counterfeiting.
The problem is that the data on a magstripe card is static. And during a transaction, it's broadcast into the payments terminal as-is. This makes them wide open to cloning. A fraudster would just need a relatively unsophisticated (and cheap) piece of technology called a skimmer to get at cardholder data and then duplicate it onto a new, counterfeit card.
Why are chip cards more secure?
Chip cards, on the other hand, have much more sophisticated layers of security. The data on that chip is constantly changing, making it near impossible for fraudsters to isolate. To extract anything meaningful, they would have to get into the physical chip circuit. Not only is this extremely difficult, but it also requires the use of expensive equipment (probably not the type your average fraudster can afford).
The actual processing of EMV cards is also a lot more secure. Chips talk back and forth with the payments terminal in an encrypted language to make sure nothing looks out of place. All in all, the whole chip card transaction is a much more safeguarded process.
How do you make a chip card payment?
If you've already paid with a chip card, you've probably noticed that the process is pretty different. As opposed to being swiped, chip cards are dipped into the payments reader (chip-side down) and remain inserted for the entire transaction. This, unfortunately, takes a lot longer (several seconds longer) than a magstripe card transaction. It's all in the name of security (all the dynamic encryption happens while the card is inserted), but it can be a less-than-ideal experience.
How do you accept chip cards?
To accept chip cards, you need to get a new point of sale (like the Square contactless and chip reader) that's outfitted with EMV technology.
Why should businesses accept chip cards?
For one, because most people will soon have them. But more critically, because you could be at risk for unwanted charges if you don't (which we go into below).
What is the EMV liability shift?
The EMV liability shift — which went into effect in October 2015 — is a "shift" in how banks handle certain types of fraud. Previously, banks assumed the liability for certain types of fraudulent transactions (meaning they ate the cost). Now that could fall on you if you aren't set up to accept chip cards. Why are the banks doing this? To accelerate the adoption of EMV as the credit card processing standard in the U.S. They're spending a pretty penny to roll out chip cards to consumers on a massive scale. And they're asking sellers to do their part by upgrading their terminals to accept those cards. You can read more in our Complete Guide to the EMV Liability Shift.
Accepting chip cards — additional considerations for businesses.
Like we mentioned, chip cards are pretty sluggish to process. This can be a drag, especially when you have a long line of people to ring up. While it's strongly advised to accept chip cards because of the liability shift, it's a good idea to offer customers faster, more convenient ways to pay. Like NFC mobile payments. Mobile payments are just as secure as chip cards, but a lot faster. They happen almost instantaneously. And as more and more people begin to realize that chip cards are slow, it's likely mobile payments like Apple Pay will see an accelerated adoption.
To sum it up, the way we pay is changing quickly. And to secure your business and offer the best possible customer experience, you need to keep up. Luckily, there are affordable and easy-to-implement solutions like the Square contactless and chip reader ($49) to get you all set up to accept EMV and NFC contactless payments.