There are big benefits to accepting credit cards, especially the new chip cards that are more secure.
My 17-year-old son recently opened a checking account. He rolled his eyes and shook his head “no” when the bank teller asked if he needed paper checks and a registry. Is he a frugal saver who doesn’t plan to spend any of his earnings? No. He’s going to spend electronically and via plastic. It’s a fact of life that few people under age 25 write checks — for anything. Banking and spending is all handled via debit card, credit card, online payment services, direct deposit, and maybe an ATM for the rare occasion young adults use cash.
This matters to you as a business owner because members of the paperless spending generation will soon be, if they are not already, your customers. Sending out a paper invoice and expecting a paper check in return will no longer be standard operating procedure. You need to accept credit and debit cards to remain viable.
Everyone else is doing it
But, you say, isn’t taking charge cards risky and/or expensive? Won’t I have to give up a percentage of every sale to the credit card company? Yes, but your competition is doing it, so what’s more expensive, giving a percentage of a sale to the credit card company or giving the entire sale to the PRO down the road who takes plastic?
Here’s another benefit of taking credit cards: When you accept a credit card for payment, you can be sure that when the charge is processed and approved, you will receive payment. No more waiting for the check in the mail. Also, long-term customers may prefer to set up auto-payments via credit card, which keeps their account up to date and your cash flow consistent month after month.
Bye-bye swipe card
If you’ve read up to this point thinking, “Of course a business needs to accept credit cards in this day and age; we’ve been doing it for years.” Good! But do you use a chip-reading terminal for credit card transactions?
In the past few years there has been a major change to credit cards in the U.S. Credit card companies are replacing traditional magnetic strip cards with new microchip-enabled cards, commonly referred to as EMV chip cards. These are more secure because traditional magnetic strip cards store unchanging data that can easily be copied to produce counterfeit cards. When an EMV card is used for a payment, however, its data-storing computer chip creates a unique code that cannot be used for another transaction. This technology makes cards more difficult to counterfeit.
Because the new “smart” cards are more secure, a change in liability took effect last October. Previously, if fraud occurred, the card issuer was liable. Now, fraud is the responsibility of the merchant. Why? The justification commonly given is that if a merchant had upgraded to an EMV terminal, the fraud would have been prevented.
Is upgrading necessary?
All this has probably left you wondering if you need to purchase a chip-reading terminal for your business in order to continue accepting credit cards?
At this time, replacement is not required, but it is a good idea. You can still run transactions with the older terminals because, for now anyway, chip cards also have a magnetic strip for swiping. If a chip card you swipe is used fraudulently, however, you will be liable. And here’s added incentive: because most large retailers are switching to chip-reading terminals, criminals are targeting small businesses more frequently. So while you may not want to shell out $200 to $600 for an upgraded card terminal, you can consider it an investment in fraud protection. If it prevents just one instance of fraud, your terminal could pay for itself many times over.
Why the delay?
The good news is that if you haven’t adopted the new technology yet, you’re not too late to the party. You may have noticed at the retailers you frequent that many of them have an EMV slot on their terminals, but signs telling you to swipe your card.
Outfitting merchants with new hardware is the first step in converting to chip technology. The second step, new software, has caused delays.
Merchants need to load new software from a third party into their systems before a terminal can accept EMV. Then the new terminals and the merchant must go through a certification process with each of the card networks. This is usually done through the bank that processes credit or debit card payments on behalf of the merchant. The wait for certification has been long due to the number of merchants converting to EMV at the same time.
According to creditcards.com, 70 percent of U.S. consumers had a chip card as of March 31. According to the EMV Migration Forum, at that same time approximately 5 million EMV-ready terminals were in U.S. stores, but only 1 million could actually accept and process chip card payments. The EMV Migration Forum estimates 50 percent of terminals will be enabled by the end of 2016; and 90 percent by the end of 2017.
The bottom line is, you should switch to a chip-reading terminal to minimize your liability, but you certainly don’t have to rush. As long as your customers can dip their chips sometime in the next year or two, you’ll be on par with most other U.S. businesses.