Is Your Point of Sale Ready for the New Chip-Based EMV Credit Card?

Small businesses using free credit card readers from companies like PayPal, Square, and Intuit may have to pony up some hard-earned cash for a new card reader in the coming year.  And merchants with Point of Sale (POS) systems incorporating magnetic-strip readers will need to update them to accommodate a new type of credit card.

In order to combat what President Obama termed “America’s fastest growing crime” of identity theft, Europay, MasterCard and Visa have teamed up to create a new chip-based credit card called EMV, coming soon to a register near you.

The new EMV card contains a secure microchip rather than the traditional magnetic strip, which is more difficult for thieves to hack and also requires the user to enter a PIN similar to a debit card.  Already in place in Europe for several years now, the new technology has reduced credit card fraud at stores in Great Britain by 70 percent.

October 2015 Deadline

While no one is forcing consumers and merchants to switch to the new technology, the President is urging Americans to do so as part of his recently enacted BuySecure Initiative.  MasterCard and Visa have announced that after October of 2015, merchants still accepting magnetic strip cards will be liable for any losses due to data breaches.

The new EMV readers are expected to cost around $300, but at least two companies, so far, are stepping up to help soften the blow.  Square has announced that it will soon be offering an update to its phone and tablet-based card readers to accept the new technology for as little as $29.  And merchants using the Square Stand POS system will be able to plug in an updated reader to read the new cards, while still accepting the magnetic strip versions.

American Express has rolled out its Small Merchant EMV Assistance Program to encourage small businesses to make the switch sooner rather than later, offering a $100 reimbursement to merchants who purchase EMV terminals. To qualify for the funds, the business must accept American Express cards and have less than $3 million in annual charges with AmEx.  Qualifying merchants who obtain an EMV-ready terminal from their provider of choice can then apply for reimbursement on the AmEx website between February and the end of April of 2015.

PayPal has a reader for chip cards already being used in Europe, but has not released any details about when it will offer an EMV reader here, or how much it will cost.

What About Apple Pay?

Apple Pay only works with point of sale registers that are equipped with Near-Field Communications chips.  The registers connect directly to the customer’s cell phone to take a payment and make checkout faster, but the readers are expensive and not likely to be embraced by small merchants.  And there is, as of yet, no Apple Pay device that merchants can use on their smartphone or tablet, like the popular credit card scanners being used today.

What’s the Bottom Line?

The bottom line is that business owners everywhere may have to shell out as much as $300 per POS for updated credit card readers.  Small mom-and-pop type businesses who take credit cards with their smartphone may, however, be able to get a subsidized or reduced cost version once the credit card providers decide to get competitive.  Will the resulting billions of dollars in savings from reduced credit card fraud lead to lower user fees for merchants?  Well — don’t count on it.