The cost of EMV compliance
Credit card companies are making the final call for US merchants to switch over to EMV chip technology in anticipation of the looming deadline. Merchants now have less than one month to update their point-of sale (POS) terminals to accommodate the new payment technology. Converting from POS terminals that solely read older cards with magnetic strips to those that read cards with EMV chips will be required by October 1st.
From that day forward, the liability for credit card fraud will be placed on merchants instead of banks. In other words, merchants electing to forego the use of EMV chip technology will be responsible for any fraudulent charges that result from the use of antiquated magnetic strip technology.
Why EMV?
During the past decade, countries around the world have adopted EMV chip technology for heightened security when paying with a credit or debit card, while the United States, the last major market still using credit cards dependent on the magnetic strip, has only recently made the push to start improving the security of in-person payments.
According to Square, one of the largest POS suppliers, nearly half of the world’s credit card fraud occurs in the United States, despite only one-quarter of the world’s credit card transactions occurring in the country. This astounding fact suggests that the United States’ late adoption of EMV technology may be directly linked to continued credit card fraud.
During the past three years, US credit card companies have slowly begun rolling out new cards with EMV chips in order to switch to the new world standard of payments. The EMV chip communicates with the network behind compatible POS terminals to enhance security, as opposed to magnetic strip technology that simply forwards your card number to the network. The EMV technology helps reduce fraudulent transactions, which currently cost banks $8.6 billion per year in the United States alone, according to FIS Global, a banking and payments technology provider.
The impact
While credit card users will be mostly unaffected, some businesses will face significant changes. Retailers and other businesses that accept credit and debit cards will need to purchase POS terminals that incorporate EMV technology, or face liability for fraudulent purchases. Fortunately for businesses that have yet to update their equipment, recent pricing trends in the POS terminal market have been very favorable during the past three years.
During the period, IBISWorld estimates that prices have fallen 1.0% per year on average and experienced minimal volatility. In the coming years, however, the market for POS terminals will face an upswing in demand due to government regulation and the requirement to accept EMV chip cards. Although strengthening demand may limit price declines of new EMV chip-enabled POS terminals, buyers are still advised to purchase them before the deadline to avoid responsibility for fraudulent charges.
The credit card payment processing market will also be impacted. In recent years, more businesses have begun accepting credit cards, and credit cards have been increasingly used as an alternative to cash and checks. These trends have resulted in higher demand for credit card payment processing services, thereby enabling suppliers to raise prices slightly.
Since 2012, credit card payment processing services have increased about 0.2 percentage points. Fortunately for buyers, the implementation of EMV chip technology will help keep the cost of credit card payment processing services from growing stronger. Because banks that offer credit card payment processing services, such as JP Morgan Chase, will be less liable for fraudulent charges, their costs will likely fall, placing downward pressure on prices for the service. Through 2018, price growth is forecast to stay flat, rising only 0.2 percentage points.