Credit Card Processing Blog

EMV Deadline Will Cause Security Breaches

September, 20 2016 1:00 PM / by Reliance Star

Despite the fact that the October 1, 2015 deadline for EMV compliance has long since passed, credit card fraud is still rampant. If your business is still unaware of EMV chip credit cards and the additional security they provide for you and your customers, it is important that you get caught up right away. In a nutshell, EMV cards incorporate a microchip within the credit card that stores the customer’s financial data. These chips are next to impossible to replicate, so thieves and fraudsters are unable to copy them to create fraudulent credit cards. 

However, these cards do still utilize the traditional magnetic stripe, which can be duplicated. Upon swiping the magnetic stripe, EMV-enabled credit card processing systems alert the user to insert the card into the EMV reader. Since fraudulent cards will not have the EMV chip, this type of fraud can easily be prevented. Despite this, many businesses have not yet upgraded to the new technology, resulting in a spike in credit card fraud activity. Keep reading to learn which factors are contributing to this increase in fraud.

Online Capabilities

Although EMV chips are highly effective at preventing in-store credit card fraud, they are unable, as of yet, to protect against fraud in card-not-present transactions, like those conducted online or over the phone. Because of this, ecommerce merchants have increasingly become the target of fraudsters, who are well aware of the lessened security in making online purchases. 

Until online security technology is able to catch up to its physical counterparts, consumers will be increasingly selective about which online merchants to trust with their credit card data. From the online merchant’s perspective, the best practice is to employ the most stringent security protocols possible to reduce the risk of hackers being able to access your customers’ data.

Lack of Retail Adoption

Although the deadline passed nearly a year ago, it is shocking to see the number of businesses that have not yet made the switch. Since the deadline, the burden of covering the costs of refunding fraudulent activity has shifted from the credit card issuers to the merchants not employing the new technology. However, the increased financial burden on merchants has not been high enough yet to spur them to upgrade their systems.

However, fraudsters are aware of this fact and will shift their focus towards businesses that are not EMV-enabled. This may result in increased fraud at these businesses, which will eventually force them to upgrade. In addition to the cost of refunding fraudulent transactions, these merchants will have the additional risk of losing customers to their competitors who do offer consumers the added EMV security.

Lack of Customer Adoption

The EMV street runs both ways, meaning that it is not enough for merchants to have the upgraded systems; customers need to have the upgraded credit cards as well. Although most of the major credit card issuers have made the switch, many smaller banks and retailers offering store credit cards have not yet issued new chip cards to their customers. Until both consumers and retailers have EMV capability, the system cannot work to its full security capacity.

For cards without EMV chips, the financial burden is still on the issuing bank to cover the costs of fraud, but with high credit card interest rates on retail cards, it remains to be seen if these banks will make the switch. As consumers grow increasingly aware of EMV security, it is likely that they will begin to demand this service going forward. Those that do not adopt EMV best practices will undoubtedly be left behind by their counterparts who do embrace this change.