This post is co-written by Square and the Small Business Administration.
This October, America will take a major step to mitigate fraud and improve our financial security by migrating away from outdated credit and debit cards that transmit sensitive customer data using magnetic stripes. In 2015, it should not surprise us that a system using essentially the same technology as cassette tapes is especially vulnerable. That is why major credit card companies, lenders, and businesses are now embracing new, more secure, authenticated payment technologies.
Many consumers already have credit cards embedded with microchips in their wallets, and many more will be receiving these cards in the coming months. This technology – also known as EMV®, developed and managed by American Express, Discover, JCB, Mastercard, UnionPay, and Visa – is a safer form of payment for buyers and sellers alike, as the cards are nearly impossible to counterfeit.
EMV is not the only payment shift on the horizon. Because reading chip cards takes more time than reading magstripe cards, we expect increased adoption of faster, contactless options, such as Apple Pay and Android Pay. This technology allows a consumer to pay with a smartphone by using a phone linked to their credit card. It is fast, safe, and convenient.
The shift to new technologies and authenticated payments is important because we have a sizeable fraud problem in the United States. According to data from The Nilson Report and BI Intelligence, the U.S lost seven billion dollars to credit card fraud in 2013. That is more than the fraud loss sustained by the rest of the world combined.
Credit card fraud losses in the U.S. are disproportionately high because chip cards are already the norm in most nations. Roughly 90 percent of credit card terminals in Europe are now chip-enabled. The United Kingdom has seen nearly a 70 percent decline in counterfeit card transactions since making the transition, according to Barclays.
U.S. credit card companies have set October 1 as the date for the national adoption of chip cards here at home. On this date, there will a “liability shift.” Businesses that have not acquired the technology to process chip cards will become financially responsible for certain fraudulent transactions previously covered by the cardholder’s issuing bank.
We need to make sure that small businesses are not left in the dark or on the hook. The U.S. Small Business Administration (SBA) and Square are working to help small businesses get educated and prepared for the transition to come. We are tapping into our millions-strong combined network of business owners to get the payment security message out at events across the country and online (more information is available at sba.gov/emv).
The majority of small businesses will need to upgrade their POS systems, as only about 20 percent of payment terminals are currently equipped to accept chip cards, and most of these are at larger retailers. Accepting contactless payments also requires new technology for most businesses; a recent report shows that 87 percent of small businesses do not currently accept mobile payments.
Advances in technology play a critical role in driving and shaping global commerce – but the true value can only be realized if everyone has equal opportunity to take advantage. Too often these changes are easily adopted by large companies with deep pockets, but are out of reach for America’s small businesses.
This should not scare anyone – it represents an opportunity. This shift is a chance for small businesses to lead the industry forward, benefiting from the latest enhancements in payment technology while also meeting the needs of customers who want to best protect themselves from fraud.
Many new EMV-enabled and contactless systems are just hitting the market. There are many affordable hardware solutions that will not break the bank of our small businesses. In fact, accessories to complement existing payment terminals are already available, with more coming online every day.
Adopting secure payment technologies is not only an important way for small businesses to distinguish themselves with their customers – it is also critical to our nation’s economy. When we invest in making sure small businesses have access to and use new technology, we all benefit.
To learn more, sign up for the upcoming webinar presentation hosted by SBA and Square, EMV 101: What Small Businesses Need to Know About The Switch to Chip Card Technology, scheduled for October 14th at 2pm ET. Click here to register.
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