by Michael W. English, VP of Product Development at Heartland Payment Systems
The EMV liability shift took place on October 1, 2015. This article explains the state of EMV in the U.S. since the shift took place. There is some good news, some items to be concerned about and much clarification that can be provided for restaurants.
150 Million Cards Issued and Counting
A big question posed by restaurants is “how many people are carrying an EMV chip card?” As of September 2015, there were 159.3 million EMV chip cards issued to U.S. cardholders. That may sound like a lot of cards but keep in mind that there are 1.9 billion cards issued in U.S. according to Statistics Brain, so we have a long way to go until every magstripe card is replaced with an EMV chip card. In regions and countries that have already migrated to EMV, issuance has taken about two to four years to migrate cardholders from magstripe to EMV.
Also per Visa, there are 397,000 retailers, restaurants and businesses accepting payment that have installed EMV readers. That is only three percent of the total installed base and, as per industry analysts, we are not expecting to see 90 percent of the installed base migrate to EMV for another three to four years. Visa also reports that 7 percent of the ATMs in the U.S. are now capable of accepting chip transactions. It is estimated that there are between 10 and 12 million payment terminals installed for cardholder payment in the U.S.
Why are the number of cards issued and number of EMV chip card readers deployed important? With an inconsistent cardholder experience, consumers will be confused as to how to pay with their EMV card when shopping and dining. Do they swipe or insert their card? When do they sign, input their PIN or is no verification needed at all? These factors will impact patron satisfaction, employee training and potentially your staffing at the POS checkouts or counters.
Also to be considered is EMV contact and EMV contactless. EMV contact cards are inserted into the EMV reader or “dipped.” EMV contactless cards are tapped on the NFC reader. The vast majority of cards being issued in the U.S. are EMV contact, with a magstripe included in every card issued. Those cards do not include EMV contactless. However, with mobile payments such as Apple Pay, Android Pay and Samsung Pay becoming more mainstream, consumers could start using their phones for payment.
Depending on the type of restaurant you have, EMV contactless be beneficial. Why? EMV contactless transactions are faster than an EMV contact transaction, typically a difference of two to three seconds. QSR, fast casual and restaurants with counter service should look at EMV contactless and NFC as a benefit to patrons, a way to manage queuing and an effort to streamline the payment process. As an FYI, the vast majority of EMV-capable devices being sold today provide EMV contact and EMV contactless as well as NFC.
And the Winner is “Chip and Signature”
Initially it was thought that that the credit card companies would implement cards preferring PIN entry also known as “chip and PIN,” whereas the cardholder enters a PIN similar to when you insert your debit card at an ATM. With PIN entry, only the cardholder (hopefully) knows the PIN, making the transaction safer for both the issuer and the restaurant. In reality, the vast majority of EMV cards issued by credit card companies in the U.S. today are “chip and signature,” which do not support PIN entry but do require a signature for transactions over a predetermined dollar amount. The issuance of “chip and signature” cards is actually a potential benefit to businesses deploying EMV terminals as those devices largely support PIN entry for “chip and PIN.” When one considers the implications of the liability shift, the restaurant will benefit in the event of a chargeback for fraud. I’ll explain why in the very next section.
What is the Real Liability Shift Impact to Restaurants?
On October 1, 2015, card brands Visa, MasterCard, American Express and Discover established a liability shift as part of the U.S. migration to EMV. They mandated liability shifts for fraudulent transactions to the party using the least secure technology.
Let’s look at counterfeit card fraud liability since October 1, 2015.
- When a Visa-branded card is in question, liability for fraud shifts to the business when a counterfeit magstripe from a chip card is used at a magstripe terminal.
- When a MasterCard- or American Express-branded card is in question, liability for fraud shifts to the business when a counterfeit magstripe from a chip card is used at a magstripe terminal.
- Businesses accepting Discover-branded cards that have deployed EMV technology will not be liable for counterfeit card transactions.
- We also need to consider lost and stolen card fraud liability.
- A business is never liable for lost and stolen card fraud with a Visa-branded card.
- For MasterCard- or American Express-branded cards, liability shifts to the a business when a lost or stolen “chip and PIN” card is used at a less secure terminal or to the party using the least secure customer verification method—if the issuer and merchant are EMV enabled.
- Merchants accepting Discover with “chip and PIN” terminal capability will not be liable for lost or stolen card transactions.
There has been much said in the press about large number of chargebacks due to fraud, such as in the case of accepting lost, stolen and counterfeit cards to be expected due to the liability shift. For the restaurant industry, this can be summed largely up to be “Much Ado About Nothing”. Why? Restaurants historically have not suffered a large number or sizeable percentage of chargebacks due to lost, stolen and counterfeit card acceptance—unlike other businesses such as petro pay-at-the-pump providers, electronics retailers, fashion-wear specialty and other high-ticket businesses. For restaurants, the occurrence of chargebacks due to fraud runs traditionally at a nominal percentage of sales, which is why restaurants are questioning the rush to deploy EMV. That being said, high-end restaurants may want to migrate to EMV as their risk is higher that a QSR with an average ticket of $5 to $7.
EMV Fact and Fiction
There is also some misinformation about EMV and essential restaurant functionality that is being tossed around in blogs and Internet articles—specifically about tipping, tip adjustments and bar tabs.
One leading misconception is that tips can’t be adjusted for an EMV transaction and that they must be done at the time of the EMV transaction. This notion is false. Not only can tips be adjusted, but restaurants with bar tabs can continue to support them after they’ve rolled out EMV.
Here’s the scoop:
- An EMV “chip and signature” transaction can be adjusted after the transaction, just like a restaurant does for a magnetic stripe transaction.
- EMV “chip and PIN” transactions can be adjusted after the sale, but it is recommended that the tip be entered at the time of customer PIN entry, saving time and streamlining the payment process.
- Heartland’s Spectrum terminal application has supported tip adjustment for “chip and signature” since September 2014.
Heartland has deployed tens of thousands of EMV-ready terminals and PIN pads—many of those installed in restaurants accepting EMV.
EMV also allows bar tabs. As per card brand rules (Visa, MasterCard, American Express and Discover), EMV bar tab functionality should closely mirror the way magnetic stripe transactions work today. The Open Tab function consists of an EMV authorization for a specified amount and the Close Tab function consists of an adjustment of the settled amount. The settled amount can be up to 20 percent higher than the originally authorized amount. If greater than 20 percent, the original authorization must be voided and you will need to run another full EMV authorization for the final amount with the EMV card—just like magstripe.
EMV and Tableside Payment
We have many restaurants asking “can the server handle the EMV card?” or “do we need to bring a payment terminal to the table?” There is nothing in the card brand EMV specifications or documentation that prohibits a server from accepting an EMV card for payment, taking the EMV card to the POS system or terminal, running the card and returning with the receipt for signature. Nothing! If you have implemented EMV at the POS workstation and have not deployed a device to take to the table for customer-convenient payment, there are no rules that say you need to do elsewise.
That being said, there are a few issuers and credit unions that have deployed “chip and PIN” cards. But, there is the consideration of if your establishment is located in an area frequented by international guests who prefer “chip and PIN.” In this case, it’s a good idea to run at least one “chip and PIN” device in your restaurant. A tableside payment device can be a great customer convenience tool that streamlines the payment process and eliminating errors as well as time for tip adjustments. There will be a time where “chip and PIN” cards become more commonly issued in the U.S., as the concern over cardholder verification grows.
What Should Restaurants Do That Have Not Deployed EMV?
Businesses that accept credit and debit cards should work with their acquirer or processor to evaluate current and anticipated fraud chargeback ratios. You should also think about your customers’ sensitivity to card security as well as how your competitors are going to respond to the EMV migration. Many consumers are looking to do business with merchants that they perceive to be secure, and EMV is a tool to curtail counterfeit cards acceptance. Also to be noted is the business’ location and demographics. Is the business located in areas that cater to customers carrying international cards? If so, it would be wise to consider upgrading to accept EMV cards. Keep in mind that every EMV card being issued in the U.S. will have a magnetic stripe on the back—ensuring that cardholders will always be able to use their cards.
If you have questions about EMV, lowering your cost of payments, how to better manage your network, improving transaction security, payroll management or anything related to payment processing, please reach out to us at heartlandpaymentsystems.com/about/contact us.