As of October 1, 2015, all companies taking credit card payments in the U.S. were required to meet the European EMV standards. That means that, instead of reading a magnetic strip on the back of the card, credit card machines have to read a chip on the card instead.
At this point, only 41% of small businesses are compliant with the new requirements. And for many franchise businesses, the corporate point of sale system is not compliant with the new EMV requirements. This is a barrier for compliance, of course, and it’s worth checking to see where the franchises you’re considering are in resolving the issue.
The problem with the old U.S. standard — the magnetic strip — is that all the card information is actually in the magnetic strip, and it’s not encrypted. Anyone who has access to the credit card can find all the information they need to use the card. The chip stores only encrypted information, and never sends or receives unencrypted data.
The chip is much more secure.
But many small businesses are not rushing to make the change. Some have actually bought the new hardware, but haven’t activated the chip reader, and so aren’t using it. This is confusing for customers who know how to use chip cards — but using the new system could, business owners said in a recent survey, be confusing for those customers who don’t know how to use chip cards. At this point, most consumers have chips as well as magnetic strips on many of their cards, but many are still not aware of the new technology.
In fact, about 9% of the businesses surveyed in the study were also not aware of the new technology. Another 10% said they did not plan to make the changes. Often the reasons given included the potential cost of the switch, although the researchers found that the businesses surveyed overestimated the costs.
Training staff members is another concern that is keeping business owners from making the switch. Counter staff will need to be able to help customers figure out how to use the chip readers.
Franchisees will also have to make certain that the systems they are required to use are compatible with the readers.
So what are the consequences of delay with chip readers?
Initially, there was talk of fines, but at this point, the consequences come up only in cases of fraud. If consumers have problems with fraud or identity theft as the result of a transaction with a business which is using the EMV chip reader correctly, the credit card company will be responsible.
A business which is not EMV compliant will automatically be responsible. The credit card company will shift responsibility entirely to the business.
Some business owners may not be concerned about these security issues, or may figure that the cost of the potential liability could be less than the cost of the shift. As a franchisee, however, you might not want to have to take that risk because the franchise you’re considering chooses not to become compliant. It’s worth asking about.