Since the EMV liability shift took place in October 2015, nearly two million merchants nationwide have changed their point-of-sale (POS) terminals from those that accept only magstripe cards to ones that accept the embedded-chip payment cards. The decision to make the change to EMV was done in part to bring the U.S. in line with much of the rest of the world that already use EMV cards, but also because EMV cards are far more secure than magstripe cards, even though the cards issued to U.S.-based accounts do not require a PIN number as do EMV cards in other countries.
While many merchants have installed EMV POS devices at their retail locations, there are still many who have yet to do so, with the main reason being that they believe it’s unnecessary, either because of their small size or the type of merchandise they sell. There are also some smaller merchants who feel that implementing EMV is too expensive and not cost-effective for their business. While it is true that most card fraud is likely to happen at retailers that carry big ticket items that are easy to resell or have a high resale value, like electronics, the implementation of EMV is driving fraudsters away from these merchants and straight to those who do not have EMV.
In a recent conversation with Aliki Liadis-Hall, director of underwriting and compliance at North American Bancard, she used a local yarn shop as an example of a small neighborhood retailer that could get burned by not implementing EMV. Many of these small, niche retailers believe they don’t need EMV because they have a very specific product that draws in a very specific customer – for the yarn shop, its demographic likely skews a little older and overwhelmingly female, and probably doesn’t have a very high average sale. The owners and employees are likely to know their customers quite well, and their product – skeins of yarn and other knitting and crochet supplies – doesn’t have a high resale value. However, Liadis-Hall says that even though merchants like a yarn shop would be at the lower end of her high priority list, they still need to get on board with EMV. “No one is going to steal all the yarn,” she says. “But at the end of the day, anyone who accepts a swiped transaction will eventually be at risk.”
With more merchants of all sizes implementing EMV, the number of places that fraudsters will be able to use their counterfeit cards will be significantly reduced. Right now a small local niche business like a yarn shop might not be the number one target of credit card fraudsters, but as the number of non-EMV merchants continues to dwindle, a non-EMV yarn shop has the potential to be very attractive.
Additionally, consumers are being sold on the value of EMV, and as they encounter the chip card readers more frequently in their everyday lives, it will become unusual to find a merchant that does not have a card reader. Fraudsters eventually find out who has EMV terminals and who does not, and they will zero in on those who don’t.
For small niche merchants who are still reluctant to implement EMV, they often change their minds after they experience the frustration and expense of fraud. “If some guy with a counterfeit card comes in off the street and buys 40 skeins of your best yarn, that’s potentially a loss of several hundred dollars to the merchant if it becomes a chargeback, because without EMV, the merchant doesn’t have chargeback rights,” said Liadis-Hall. “The real cardholder who had her information stolen to make that purchase is going to dispute it. So again, the merchant is out the money and out the product, which can have a very detrimental effect, particularly to the smaller merchants.” Sometimes the cost can be too much to bear, and the merchant goes out of business.
“We find that merchants usually don’t feel as if they’ll be affected by card fraud and chargebacks until that first dispute comes in and they want to know what recourse they have,” Liadis-Hall says. “And we have to tell them, you have none. It was a counterfeit transaction and you don’t have EMV. At that point, they usually want to know what they can do to prevent it from happening again, and we tell them, install EMV terminals.”
In the year since the EMV liability shift, card fraud is overwhelmingly moving online, but that doesn’t mean merchants who don’t sell computers, tablets and other technology or other expensive, high ticket items with high resale values will be safe without EMV.
“I can see it both ways,” Liadis-Hall said of the hesitation of small niche merchants to implement EMV, “but my recommendation is to get it (EMV) in there. Save up or whatever you’ve got to do, because all of your savings can get blown out of the water as soon as you have that first loss.”