The 21st century brings a new normal to commercial transactions: the ever-present possibility of identity theft and remote credit card fraud. Criminals are now very sophisticated in the realm of hacking and accessing private accounts and lines of credit. Financial institutions are hard pressed to keep a step ahead of these cyber-bandits. One measure taken to counter these predators is the electronic microchip embedded in credit and debit cards. Information on the chips is less vulnerable to unauthorized access than that data found on the traditional magnetic strip. At first impression, the EMV (standing for Europay, MasterCard and Visa) card is an optimal solution to protecting consumer information. The burden on businesses, however, can offset the “smart card” advantages.
Many businesses still use card processing terminals that are over three decades old. These, of course, are compatible with magnetic strip data. Most establishments have continued to process cards in this manner without incident. However, the major credit card companies require conversion to chip readers, confronting business owners with a hefty price tag. In fact, businesses assume the responsibility for fraudulent activity if they do not upgrade to chip-reading technology. This technology is costly to produce and that cost is passed on to the merchants. Although investment in this secure technological infrastructure appears as a wise one-time expense, it turns out that the financial hits do not stop there.
Transaction fees to merchants tend to be higher when chip readers are employed, especially with regard to debit cards. Many machines default to large payment processing companies like VISA, that charge between one and two percent of the transaction value, while ignoring smaller networks like:
Worse, the chip-oriented terminals more often offer signature-based authorization as opposed to personal identification numbers (PINs), which carry lower fees per purchase. Over the course of a year, businesses can lose thousands of dollars because of these technological settings. They are right to ask whether the enhanced security is worth the surrendered revenue, given the fact that money lost to fees often exceeds money lost to fraud.
Entrepreneurs have yet another concern: for all the cost of conversion and maintenance, do chip-reading terminals really make transactions more secure? Many retailers doubt it, as long as the readers ask for signature authorizations. According to security professionals, the EMV chip will authenticate the card itself, but cannot verify the person using it. A chip-with-PIN combination, on the other hand, adds that extra layer of security that the signature does not afford. So far, card processors like VISA demonstrate lukewarm resolve to move away from signatures, though they do not object if banks bear the financial burden of the transition.
The retail and financial sectors have historically been at odds over credit cards and processing fees. Ultimately, businesses and customers must absorb the price of greater security. The question remains: do chip readers provide truly improved security? If so, can businesses sustain financial loss in the cause of loss prevention?
July 10 2017