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The Future Is EMV: What the Change in Credit Card Signature Requirements Means for SMBs

Business.com / Finances / Last Modified: June 8, 2018
Photo credit: Marco Scisetti/Shutterstock

American Express, Discover, Mastercard and, most recently, Visa have done away with signatures. What does this mean for small to medium-sized business owners?

As payment technology evolves to make transactions more seamless and convenient for merchants and their customers, the credit card industry continues to focus on improving the speed, simplicity, and security of card transactions. These efforts have become especially evident with the recent suspension of the long-established policy that required cardholders' signatures for authorizing credit card transactions.

American Express, Discover, Mastercard and, most recently, Visa have all agreed to do away with signatures but with a caveat that preserves the old requirement for transactions conducted using outdated technology, such as magnetic stripe cards. From now on, the only parties that will be able to take advantage of this amendment are those that rely on EMV-enabled cards, commonly known as chip cards.

The main reason why the signature requirement stuck around for so long is fraud prevention. However, its effectiveness has been called into question due to the lack accountability involved. Merchants rarely compared signatures provided by customers to actual signatures on the back of cards, rendering the whole process ineffective. Taking into account the resulting low cost-to-benefit ratio of signatures, the change was long overdue.

This announcement represents an important victory, especially for retailers who are poised to generate significant savings on credit card fees for businesses. The customers will also welcome the change, since they get to experience a quicker and simpler checkout process. In certain cases, they may also benefit from lower costs from the merchant by encountering reduced prices or lack of surcharges. And, of course, instead of experiencing the false sense of security provided by the outdated and ineffective signature requirement, they can take advantage of everything the EMV standard has to offer.

EMV, named after its developers Europay, Mastercard, and Visa, is a payment technology behind chip cards, which has risen in popularity in recent years. The chip itself contains software that stores the cardholder's information and other sensitive data related to the card. With EMV, each transaction uses a process called tokenization that generates a unique one-time combination of letters and numbers to encrypt the data required to process payments. The EMV technology is also responsible for the antenna built into the chip card that can be used for NFC (near-field communication) transactions.

While the EMV standard has been around for some time, it hasn't been taken as seriously as it rightfully deserved until October 2015 when the EMV liability shift sorted out the questions related to chargebacks. At that time, it was announced that all fraudulent transactions occurring on EMV-enabled devices would be automatically charged to the issuing bank, while those that transpired on hardware not compliant with the EMV standard would fall back on the merchant.

The announcement made waves in the payment industry, resulting in 52 percent of U.S. merchants equipping their business with EMV technology in the two years that followed it. The EMV adoption rate has been largely on par with one that took place in Europe in years prior, and it is expected to continue, considering that over 90 percent of the U.S. payment dollar volume occurs on EMV-backed transactions.

Despite the fact that there is no legal requirement to upgrade to EMV, protecting a business from the risk of chargebacks is well worth the one-time cost. In addition, it comes with multiple ways to accept payments: contact EMV, which requires a chip card to be physically inserted into a terminal; contactless EMV, which enables the use of NFC technology; and mobile EMV, which helps securely accept payments from the customer's phone.

Here are a few simple tips that merchants looking to enhance their business with the EMV standard can follow to ensure a smooth transition:

  • Contacting a payment processor should always be the first step, as they can help determine the type of approach required for a business of a certain scale. A professional can also come in handy when it's time to teach the merchant how to use equipment properly and offer support with any problems that might arise after the initial launch.
  • Examining the technical capabilities of their business is another important thing for a merchant to consider. EMV technology requires a strong internet connection in order to operate at full capacity. Having an IP connection with a dial-up on backup, in case the former one goes down, is the best-case scenario. In addition to the type of connection, a merchant should consider the strength and reliability of their internet connection.
  • Every major tech transition comes with some degree of trial and error. To reduce its impact, communicating with a merchant services provider early and often is strongly encouraged. Running test transactions prior to putting the technology in regular rotation and being transparent about both existing and potential issues will help merchants decrease the time between the initial adoption and their ability to run successful transactions independently.

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