Payments Fraud: A Small Business Survival Guide

Date posted: December 13, 2016

payments

By Joe Gage

There’s no sugar-coating it.  The transition to so-called “chip” credit and debit cards has been one of the most troublesome technology roll-outs in recent memory.  The continuing struggle has impacted everyone involved in payments, from consumers who face constant “insert the card or swipe it” confusion, to technology providers who are scrambling to keep up with both demand and the ongoing evolution of chip technology.

But merchants – and particularly smaller businesses – have suffered most.  Not only was this substantial technology upgrade thrust upon retailers, but so was liability for fraudulent charges made with non-chip cards.

A year after the Oct. 1, 2015, shift in card fraud liability, the majority of U.S. businesses are still unable to accept chip cards, which are known as EMV cards.  According to a survey from the National Retail Federation, less than half of responding retailers had implemented or planned on implementing EMV at their retail locations by the end of June of this year.  In most cases, this is not due to lack of merchant effort:  equipment availability has been limited, and certification of EMV systems by card issuers can take up to six months or more.

In the meantime, fraudsters are clearly taking advantage of the confusion, putting merchants at greater risk. An April report by The Strawhecker Group found that small and midsized merchants have experienced a 31 percent increase in chargebacks since the EMV liability deadline.

Liability for fraudulent charges is a serious risk for restaurants, bars, retailers and other small businesses.  As business owners work to navigate the EMV transition, they need to consider these five best practices that can help to minimize the chance for fraud:

  • Ask for card users’ driver’s licenses at the register. Taking the extra step to match the cardholder’s name with the name on a driver’s license is a simple task that can go a long way in preventing a very common form of fraud.
  • Avoid manually entering credit cards into your systems – always swipe. If you can’t accept EMV, make sure cards are being swiped at all times.
  • Deny cards that fail to swipe. Ask for another form of payment if the card is rejected or unreadable. Mobile payments are often an option, or, of course, cash.
  • Always get a signed receipt. A signature on a proof of payment could be a valid document for merchants challenging a chargeback. Even if your employee can’t verify the signature, a card issuer or bank should have records on file.
  • Ask your point-of-sale provider or payments processor if they offer an EMV protection plan. Some payments processors, including Sterling Payment Technologies, have established fraud liability protection for merchants awaiting EMV certification. If you’re still waiting to accept chip cards, certain processors are going above and beyond to help reduce merchant risk.

While these best practices help to reduce the chance for fraud, it’s smart for small businesses to start developing and implementing an EMV transition plan if they haven’t already.  It’s important to plan this process carefully, as point-of-sale systems are often integrated into a wide range of business processes, helping business owners manage everything from inventory to employee schedules to financial reporting.  Business owners must ensure that EMV upgrades don’t end up robbing them of valuable business intelligence along the way.

Small business owners also need to keep an eye on the continued evolution of EMV, which is currently being shaped by both technology and the legal process.  Some larger retailers are already pushing to move from the EMV chip-and-signature format to an even more secure chip-and-PIN-number combination.  Since May, Wal-Mart, Home Depot and Kroger have sued Visa and MasterCard, alleging that the card providers have not allowed them to implement the chip-and-PIN format. This comes amid reports that the largest U.S. retailers are dealing with up to $1 million in chargebacks per week while awaiting EMV certification.

Meantime, the credit card companies are making moves to enable chip and PIN transactions, and to reduce the time it takes for merchants to secure EMV certification.  That’s good news for businesses of all sizes, but it also demonstrates how EMV solutions continue to evolve.  This transition will continue to offer new twists and turns in the months to come, and small business owners will need to ensure that their payments systems are not only EMV-complaint, but also ready for chip and PIN and other potential upgrades in the future.

There’s no sugar-coating the rough transition to EMV for sure, but there is a sweeter deal at the end of the process:  more secure transactions and reduced risk for small businesses.

Joe Gage joined Sterling Payment Technologies in August 2014 and now serves as Executive Director, Integrated POS. 

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