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It has begun

LOS ANGELES TIMES:

Samantha Masunaga 
Contact Reporter

Starting Thursday, most shoppers will no longer be swiping their new credit and debit cards into merchants' card readers to make purchases. They'll be inserting them instead — chip side first.

The new pieces of plastic that banks and other card issuers have been sending to customers contain a tiny metallic chip designed to reduce counterfeiting, just as similar Europay credit cards have cut such fraud throughout Europe.

The technology in the microchip makes it more difficult for criminals to forge fakes and easier for merchants to authenticate cardholders.

On Thursday, the credit card industry will add bite to its rollout by shifting liability for covering counterfeits to the party that has not adopted chip technology — either the merchant or the credit card issuer.

"To the extent that this cuts down on fraud, it's probably a win for everyone," said Michael Simkovic, an associate professor at Seton Hall University School of Law.

For merchants, this means ensuring their sales terminals accept the chip technology and contain a slot in their readers for the new cards. Unlike a card swiped quickly, a chip-enabled card must remain in the reader until the machine OKs its removal.

That longer processing time has made some customers uneasy. At a Home Depot in Burbank, Robert Montanez said he worried it would give criminals a greater opportunity to steal his data if the sales terminal were hacked.

About 70% of credit cards will be chip-enabled by the end of the year, said Doug Johnson, senior vice president of payments and cybersecurity policy at the American Bankers Assn., the leading bank trade group."I don't trust it as much," said Montanez, 39, of San Fernando. "I leave it in way too long. The swipe is faster."

Prepaid cards also are moving toward chip technology, but at a much slower rate because of a wider variety of offerings, lower value limits and less risk for merchants and card issuers, said Brian Riley, a principal executive advisor at research firm CEB TowerGroup.

Some prepaid cards, such as those for international travel, already carry the chip technology, but many others, including low-value branded gift cards and incentive cards, will probably never convert to EMV, an industry term named after the three companies that created and developed the chip card in the 1990s: Europay, MasterCard and Visa.

The standard magnetic stripe cards will probably remain in circulation for years, said Seth Ruden, senior fraud consultant for the Americas at ACI Worldwide, a payment systems company. Full compliance on the merchant side won't happen until 2017 when automated fuel dispensers are also required to have payment terminals that read the chip cards.

The change comes as card fraud has more than doubled in the U.S. over the last 15 years while falling in much of the rest of the world where chip-enabled cards have been in place for much of that time.

The cost of fraud in the U.S. rose to 12.8 cents per $100 last year from 5.6 cents in 2000, according to the Nilson Report, which analyzes the global card and mobile payment industries. Last year, the U.S. sustained 48.2% of the world's card fraud.

The Federal Reserve further broke down some of these numbers in its 2013 triennial study of non-cash payments in the U.S.

The Fed calculated a total of about 13.7 million fraudulent credit card transactions in 2012 totaling $2.3 billion in charges. About 52% of those transactions involved cards that were presented to retailers for purchases; the rest were attributed to online and other fraud where the card isn't used at a store.

It is that on-site fraud that the chip technology is designed to prevent. About two-thirds of the fraud against Visa involves counterfeit cards, said Stephanie Ericksen, vice president of risk products at Visa Inc.

Though the chip technology won't end all types of credit card fraud, experts say it's a needed first step.

"We're hoping that once we get the magnetic stripe out of the equation that we'll properly secure the environment," Ruden said.

Throughout the 2000s, chip cards were rolled out across Europe, and Britain fully implemented EMV technology in 2006. Counterfeit fraud in Britain dropped to 10% of all fraud from 26% over the decade ended 2013, CEB TowerGroup said.

Even though chip-enabled cards are difficult to counterfeit, anti-fraud experts would like to eliminate that possibility altogether. Many already are looking at mobile payment systems as possibly offering better protection.

Using a cellphone also could curtail the online fraud that chip cards can't touch, said the ABA's Johnson. Online credit card fraud has skyrocketed to 67% from 29% of all card fraud in Britain over the 10-year span through 2013, a CEB report found.

"What we're seeing in the U.S. is moving more toward mobile payments," Riley said.

For now, though, the chip card will become the predominant piece of plastic in consumers' wallets.

Large retailers such as the Home Depot Inc., Target Inc. and Wal-Mart Stores Inc. said the transition to sales terminals for chip cards is complete or on track to finish by Thursday's deadline.

But many small businesses said they aren't ready.

According to a Wells Fargo/Gallup survey in July, 49% of small-business owners said they were aware of the looming shift in liability. But only 31% said their current readers accept chip cards, and only 29% said they intended to make the change before Thursday. One-fifth said they aren't planning to upgrade at all.

Cost is one factor. Prices for the new readers alone range from $50 to $600.

Madelyn Alfano would have to pay up to $25,000 to update the sales terminals in her 10 Maria's Italian Kitchen restaurants throughout the Los Angeles area.

She said she will probably get one or two readers for each location in the next few weeks, which could slow down daily operations since the staff usually operates from five sales terminals at each restaurant.

"It's another expense, another cost of doing business," she said.

Target's bill was $100 million to install the payment devices, update the software and issue new credit cards with chips, said spokeswoman Molly Snyder. The National Retail Federation trade group estimated that across the nation, the cost of the new readers, software and other installation costs could hit $35 billion.

Retail associations also pointed out that the U.S. adoption of chip technology is not quite as it was in Europe.

In Europe, customers make purchases by inserting their chip card and punching in a personal identification number, or PIN. U.S. banks can issue cards that require either a signature or a PIN. Retailers and security experts said the chip-and-PIN is more secure because anyone could scrawl a signature with a lost or stolen chip card.

"It's like locking the front door and leaving the back door wide open," said J. Craig Shearman, spokesman for the National Retail Federation.

A PIN, however, isn't foolproof.

"If you're entering your PIN number in more places, there also are more opportunities for it to be stolen," said Seton Hall's Simkovic.

samantha.masunaga@latimes.com
Twitter: @smasunaga

EMV FAQ 2: Do I need a PIN for my EMV credit card?

Great news article about EMV technology.

Credit cards getting long overdue makeover

Why EMV Is A Big Deal For Small Business from PYMNTS.com

Why EMV Is A Big Deal For Small Business | PYMNTS.com

The link above will take you to the podcast. Read below for a transcript of the conversation.

Coming off the Sage Summit in New Orleans at the end of July, where MPD CEO Karen Webster had the opportunity to talk to many small business owners about their views on payments (among other things), she recently reconvened in a conversation with Robert Bertke, Senior Vice President of Research and Development at Sage. They discussed their takeaways from the event — in particular the challenges that small business owners face in preparing for the upcoming EMV liability shift in October.

Small businesses aren’t the only merchants that are ill-prepared to handle the move to EMV, but they may be the group that has the best “excuse.” Quite simply, SMBs (as the label implies) are small and resource-constrained. What time they have, they prioritize around the needs of their customers over everything else. It’s a perfectly reasonable rationale, but that fact alone — or that reality perhaps — doesn’t excuse small businesses from having to bear the responsibility in the event of fraud when October 2015 rolls around.

Bertke believes that there is a way for SMBs to prepare themselves for the EMV shift while minimizing the strain it places on their day-to-day operations. He and Webster talked through the details.

KW: I just came back from Sage Summit, which I thought was a great experience. I got the chance to mill around with the more than 7,500 small businesses that came. And I heard firsthand from them some of their reactions to all the things that are coming at them and that they are trying to absorb, of course including EMV. Statistics show that more than half of them simply won’t be ready in time for the liability shift on Oct. 1.

What are you telling small businesses that aren’t ready? And, perhaps more important, how are you convincing them that getting prepared for the shift is worth the effort?

RB: That’s a really good question. I think the biggest piece of this for Sage is to help educate our customers about the exact implications of EMV and let them make the decision about when it’s in their company’s best interest to invest the time and the money.

More importantly — and this is something that people really need to understand — training is one of the biggest components of EMV. I think it’s really on us at this point; we did it through Summit, and we’ve had other webinars and even created a website that deals with the topic. We’re doing what we can to educate merchants as to what their responsibilities are and what they need to look at.

It’s also important to understand that EMV is not a mandate. There is a liability implication, but it’s not mandatory that a merchant actually comply. They need to make that decision for themselves.

KW: What are merchants contemplating? What’s in their consideration set?

The thing that struck me, as I was talking to some of the businesses owners at Sage Summit, was how they’re very focused on the basics of running their companies: getting paid and sending out invoices on time, for example. EMV is not a top priority for them because it doesn’t help them check either of those two boxes.

RB: Exactly. But they need to take into consideration the liability shift in October that will accompany EMV technology and balance it with the other factors that you mentioned.

I can tell you from our experience working with small business owners that they don’t have a lot of time to consider things other than serving their customers. We do what we can to concisely give them the information about EMV so that they can understand.

Come October, if a merchant accepts an EMV card but doesn’t process it as an EMV transaction and that card transaction ends up being fraud, they will be liable for it. To evaluate their potential risk in that regard, the merchant has to take into account factors such as the amount of fraud that they already see in their business, their existing relationships with their customers and things of that nature.

KW: It’s not that small businesses aren’t concerned about fraud or they’re de-prioritizing it; perhaps, they don’t really understand the impact because they are small. Do you think that’s part of it?

RB: I absolutely do. The one thing that’s obvious to me as I speak to these owners is the amount of time and energy it takes just to keep the lights on in a small business — all their time goes towards that. Analyzing the fraudulent transactions that they deal with and understanding how they occurred, or even the degree to which it should be a concern to them, is not something on which they’re very well-educated.

The challenge for Sage has been providing them with that information in a way that they can understand it and then make their decision about how much time they can spend looking into their exposure.

KW: How are you helping them to gather that information and make informed decisions?

RB: We have spent a lot of time creating a number of resources — not to mention the number of presentations and webinars that we’ve given in which we lay out exactly how the fraud can happen. As I mentioned, we’ve got a website, SagePaymentsEMV.com, that is specifically dedicated to helping our customers understand exactly what they need to be concerned about.

Our responsibility is to provide this information to our customers in a way that they can consume it. Short webinars, online information and concise fact sheets are the way to access them because they’re very busy. We can’t provide lengthy documents that are deep explorations of liability; we need to do this in sound bites that get the information across in a short time. We’ve been doing that through a number of channels to get the message out.

KW: Another thing I talked about with some of the business owners at Sage Summit was the notion of contactless cards, mobile wallets and other forms of payment and how they’re thinking about accepting them. I did get a lot of blank stares!

How do you think those kinds of innovations are factoring into the small business owner decision set?

RB: From my experience, those are much smaller considerations than EMV. Right now, small businesses are not experiencing any big push from their customers to accept contactless payments, certainly, or even mobile. We have merchants who do accept Apple Pay, for example, but I don’t feel that our customers believe that’s absolutely critical in their day-to-day operation.

If it’s built into solutions, I think they’d like to have it. It is important to Sage that we help our customers be able to take any payment, anywhere, any time; and we’re working to bring solutions to bear so they can do so for free. But I don’t believe they’re willing to work hard for it at the moment.

EMV, on the other hand, is a little more concerning. While small business owners are focused on keeping the lights on, they realize that although they don’t want to spend the time on EMV, they’ll have to at some point. As their customers start to demand contactless payments or mobility, they will become more interested in those products.

I do believe that contactless cards, from what we’re seeing, don’t seem to be the real driver of that kind of technology. It’s more mobility: solutions like Apple Pay, Android Pay and Samsung Pay. As more of those come out, I think they will define the landscape of new technology like contactless payments more than RFID cards, for example.

KW: I think you’re right. Businesses will wait until enough consumers ask for acceptance of a specific payment method, and then they’ll explore it. To your point, making it easy for them to basically flip the switch is what small businesses would find to be the ideal solution, because they don’t have the resources or the expertise to figure it out on their own.

A trend that we frequently cover on PYMNTS is omnichannel, particularly from the business perspective. How are small businesses considering omnichannel — being present on the mobile channel, on the online channel and in a physical environment? Do they perceive it to be a barrier or a priority at the moment?

RB: I believe that it is a priority for many businesses. Sage is working to help our customers understand that omnichannel is important.

The concept of serving your customer anywhere and any time that they want to make a payment is very important to the way the industry is moving. I think customers are going to more and more expect technologies like roaming POS — like you find at an Apple Store, for example — to be available. There’s also of course the popularity of eCommerce. As businesses continue to explore payments, they desperately need to consider omnichannel options.

KW: As we talk right now, we know that more than half of businesses won’t be ready when the EMV liability shift occurs. Do you think that small businesses will become EMV-compliant over the next three to four years? Do you think they’ll look at alternatives like mobile, in some cases, to leapfrog an EMV requirement because of the environment that they’re in? What do you think they’ll have to overcome to get to that future state, whatever it may be?

RB: We can look at Canada and its EMV rollout as an example here. After seven or eight years, they’re only at an 80 percent merchant acceptance rate; 20 percent of transactions are still on a traditional card. It’s fair to assume, then, that over the next several years in the U.S., we will not approach a 100 percent merchant acceptance rate for EMV.

This kind of goes along with the omnichannel point. I think what’s going to become clearer over the next several years is that small businesses have to be prepared to take payments in a multitude of ways. That includes traditional cards, completely bypassing EMV. And EMV itself comes in a couple of flavors: there’s chip-and-signature, and there’s chip-and-PIN. Understanding all of the various payment options that your customer has and making those available will be the challenge in the next five years.

I don’t believe EMV is going to make any of this easier; in fact, I think it’s only going to make it more complicated. As we move towards, let’s say, 2020, the challenge for these businesses is just going to be continuing to keep up with the payment trends. To your point, something could come along that could circumvent EMV a little bit — perhaps a mobile POS.

The important thing for small businesses is to stay flexible. They should select a payment partner — Sage considers itself a good candidate in this regard — that’s very focused on making sure they’re up-to-date and work closely with them to ensure they’ve got the tools they need.

KW: Do you think that consumers will be educated enough about EMV cards that they’ll start asking merchants that don’t accept them why they don’t?

RB: That’s a very good question. It could happen, but I don’t believe we’re at that point right now.

The vast majority of the people I speak with who have EMV cards have simply noted the novelty of the chip being in the card. The liability and the implications that chip has have not reached consumers in any way that I can see. Over time, as more people experience EMV transactions, I think they’ll come to understand it better. But I think that’s going to take a period of months and years.

KW: We never seem to get rid of any payment method. Merchants still accept cash, they’ll reluctantly accept a check, they’ll obviously take cards … and, once enough momentum has occurred, they’ll accept a variety of mobile payments.

The point you made earlier about merchants having the right capabilities to seamlessly enable the new payment methods that come along without complicating their own environment is critical — especially when you’re a small business, and you have to be able to pivot from the consumer that pays you in cash to the one that uses a mobile app to pay. It’s a lot to deal with.

RB: I agree. And in fact, something that Sage Payments takes great pride in is helping our customers take any kind of payment, any time. We support check transactions; we’ve got point-of-sale devices that have the ability to record cash; our mobile solution has that ability, as well.

There’s two sides to the matter. There’s the “cutting edge,” which a merchant needs its provider to help it stay on, but there’s also the “long tail.” I think Sage is uniquely positioned to help customers with both sides of that equation. But you can’t ignore checks; you can’t ignore cash. As you said, we never get rid of those. That long tail is going to stay pervasive in a business for years to come.

KW: As I said, I really enjoyed being at the Sage Summit. You really get the sense of what’s important to a small business when you actually talk to them — learning what they’re worried about, what their priorities are, what keeps them up at night.

Payment methods and related elements are important to them, but not as important as making sure their overall business is running smoothly: that they’re selling products or delivering services and keeping their customers happy. All of this other stuff has to work for them in a way that doesn’t introduce complexity or friction.

RB: You bet. That’s why, at Sage, we consider it our charge to make sure that we provide these solutions absolutely seamlessly. Those merchants just don’t have the time to think it through, so it is incumbent upon a provider to build the solutions in, make it easy for them to add to an existing suite of payment options and make sure that they seamlessly integrate. We believe, as a provider, that we have a responsibility to keep it simple.

Peril of New Chargebacks Could Bring EMV Into Focus for Unaware Merchants
August 21, 2015

By Kevin Woodward

A significant chunk—44%—of small-business owners have no knowledge of the EMV liability shift coming Oct. 1. That finding from “Small Business EMV Readiness,” a report released by Javelin Strategy & Research this week, suggests that many might be in for a shock when their merchant-processing statements arrive in November and December with chargebacks formerly borne by issuers.

“Small businesses are potentially going to bear a significant cost of fraud,” Michael Moeser, Javelin director of payments, tells Digital Transactions News. That’s because acquirers already have updated their systems to process EMV transactions, and issuers have mailed credit, and soon debit, cards bearing chips to consumers. Yet only 36% of small businesses surveyed planned to implement EMV acceptance in the next few months. “We see that as a big gap,” Moeser says.

It may also represent an opportunity for independent sales organizations and other merchant-services companies, offering them a different way to talk to merchants about EMV.

As the November and December processing statements arrive in their mailboxes, many merchants will question the chargebacks they’re seeing for the first time, perhaps realizing then the significance of the liability shift, Moeser says. If only to “ask about the chargebacks,” he says, merchants will at least want to have a conversation with their ISO.

Now, salespeople are no longer talking about chargeback liability in theory, but can now explain actual chargebacks and their reasons.

Merchants might consider that the fraud charges they have to pay, which may continue if they don’t adopt EMV acceptance, would outweigh the cost of buying an EMV-compatible terminal.

As for why a small business might not have adopted EMV, 27% of them cite lack of clarity as the primary reason for not adopting the payment technology, the report says. The reality of new chargebacks might bring EMV into focus, according to Moeser.

The Javelin report is based on online surveys of 250 small businesses collected in Oct. 2013 and Oct. 2014.

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E-Commerce Merchant Accounts Are in Danger

Great article from Instabill.

Jul 27, 2015

Without proper and timely action, e-commerce merchant accounts and the merchants and customers which they serve are in grave danger from hackers.

Three quarters of point-of-sale merchants in the US either aren’t ready for or don’t know about the EMV liability shift – to take place on Oct. 1, 2015. It has fraudsters and hackers chomping at the bit for the prospects.

Once hackers are unable to penetrate the unique chip code EMV cards generate, they will turn their wrath to e-commerce businesses. It happened in Europe when e-commerce took hold in the late 1990s and early millienium; then again in Canada when it migrated to EMV cards from those with the magnetic stripe.

Without proper and timely action, e-commerce merchant accounts and the merchants and customers which they serve are in grave danger from hackers.

Card-Not-Present Fraud: ‘It Will Be Worse’

Because US businesses and consumers have Europe and Canada as post-EMV models to follow, logic has it that the heavily predicted card-not-present fraud won’t be as rampant here. An industry insider disagrees and believes CNP fraud will be worse than it was in either country.

“I think it will be worse. Only 25 percent of merchants know what EMV is, and it’s coming in two months,” said Ed Black, the Director of New Business and PCI Compliance at Comodo, an internet security provider. “We also know from the Verizon report that only 29 percent of merchants stay PCI compliant within a year of attestation.”

3 Things Online Merchants Should Do

Remember that scene in the 1984 film Gremlins where the small group of critters falls into a swimming pool, multiplies in the thousands and wreaks havoc in the small town? A hacker penetrating an e-commerce website can be looked upon similarly. Once the hacker has penetrated a business’ website, he now has access to the credit card data of its customers.

Upgrade Operating Systems: Hackers prey on merchants that use old operating systems, such as Windows XP, that no longer go through security fixes and upgrades. “Windows XP no longer keeps up with the needs and threats of 2015,” said Mr. Black. “Windows doesn’t make patches or support it any longer, yet hackers know that people still use it. And they exploit those weaknesses.”

Quarterly PCI Scans and Penetration Testing: Merchants simply need to decide how valuable their business is and how much they want to invest to protect it. PCI scanning costs less than $100 per year. Penetration testing, required for some merchants, is upwards of $7,000 a year.

“Penetration testing is very labor intensive,” said Mr. Black. “If you are an e-commerce merchant and fall under the A-EP, C or D merchant categories, it is required. It is now the cost of doing business.”

Invest in TLS Certificates: Merchants need to upgrade from SSL certificates to TLS (Transport Layer Security) 1.2 to protect their e-commerce merchant accounts. “TLS certificates can be relatively inexpensive depending on how many domains, subdomains and IPs need to be covered,” Mr. Black noted.

Considering the consequences – losing your customers’ credit card data and possibly your business – PCI DSS 3.0 and 3.1 compliance are necessary investments.

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