Got EMV?: Why You Should, and What's Ahead
The chip card (EMV) deadline passed in October 2015. Yet according to industry accounts, fewer than 50 percent of retail and restaurant outlets were set up by the end of December 2016 to accept cards this way. Since readers of this magazine are both franchisees and consumers, I will address both sides of what is going on with chip cards.
As a consumer, you are likely a bit upset with longer, slower lines in stores because of the additional time it takes for EMV transactions to clear. And as a business owner, you are likely seeing more chargebacks than ever before. But wait, wasn't EMV supposed to reduce fraud and potential chargebacks?
Well sort of. The U.S. is the last of the G-20 nations to adopt EMV. And, in our infinite wisdom, we mostly have rolled out only chip-and-signature technology, while the rest of the world is using chip-and-PIN.
What's the difference? With chip-and-signature, someone could still steal your card, use it at a retail establishment and just sign it. No new real security here. As such, there is still a risk of fraudulent transactions at the POS. With chip-and-PIN, there is very little risk of this as the would-be thief would not know your PIN (unless you wrote it on the card).
So why did the banks bother at all? So they could protect themselves from the larger risk of someone hacking an entire system. Data transmitted with a chip card is much more secure than with a magnetic stripe.
Back to those pesky POS transactions and increased chargebacks. The banks have not been aggressive in shipping cards with chips. Why would they be? If they reach a penetration rate of 75 percent of all cards used by merchants, the entire risk migrates back to them. Currently, about 65 percent of all cards in circulation have a chip in them. So the banks have bought themselves and extra year or two.
What about franchisees?
Why haven't more implemented EMV readers? The POS companies see this as a great way to earn additional hardware money (and in some cases, SaaS fees). So franchisees and their franchisors are weighing the cost of the new hardware and software against the rise in chargebacks. But be aware: as more EMV cards enter the marketplace, you will get more chargebacks unless you upgrade!
Quick service restaurants in particular are hesitant to embrace EMV readers because of increased transaction time. On average, EMV transactions take 20 to 25 seconds, compared with just 1 or 2 seconds for swiped transactions. This makes a big difference in getting people through the line during a breakfast or lunch rush. As I've noted before, I am betting this issue will start to push a much safer and faster method of payment using NFC technology (near-field communication like Apple Pay, Android Pay, and Samsung Pay).
Table service restaurants have had to invest in expensive pay-at-the-table type solutions. However, the good news here is that technology is finally catching up, and we are seeing new hardware options coming out rapidly and getting cheaper to implement.
Membership businesses like health clubs, tanning, massage, and lashes salons will have to factor higher chargebacks into their business models. Businesses where customers book online for even one-time appointments also will see higher chargebacks since a customer can't present a chip card when booking these services. However, they can lower their risk and minimize chargebacks by working with their software provider and payment processor to make sure they are passing on all the data needed in those transactions.
Some of our clients that use proprietary software pass on only the minimum information needed to charge a credit card. But by passing on a customer's street address, ZIP code, and if necessary, tax amount, you not only will reduce your chargebacks, you'll also get lower interchange rates from the processors. All "card not present" business models, even if they actually see the customer and are not really e-commerce, will see more chargebacks as fraudsters will naturally migrate toward these businesses.
Mobile franchises, such as handyman services, are getting much more involved in accepting payments from smartphones and tablets. The hardware providers are just now catching up, and we will start seeing EMV readers that connect to smartphones using Bluetooth or other technologies. However, these are not cheap, and it is likely that the practice of giving the readers away free will disappear. (I would expect to pay between $150 and $300 for these.) But assuming fairly large average tickets here, the saving of just one chargeback will more than pay for the new device.
We are at the point where any franchisee with "card present" transactions should be looking at adding EMV readers. But please, do yourself a favor and make sure you have NFC in place as well, as I truly do think this is where we will end up in the U.S. NFC is much safer and faster than chip-and-PIN, and a growing number of consumers have a mobile wallet in their smartphone--and even if they are not using it today, people will soon learn not only that they can get through lines more quickly, but also that they will have a much lower chance of having their card numbers stolen. There even could come a day when no one even carries a credit card any more. No more George "Seinfeld" Costanza wallets!
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