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It sounds intimidating: EMV compliance law. But it’s not a law, and you can’t be penalized or fined by the government for not following suit. You could face potential costs if you don’t listen to the orders coming from Visa and Mastercard to switch to chip technology in your business. However, whether or not it makes sense for your business depends on your type of business.

EMV stands for Europay, Visa, Mastercard — the three entities behind the change in how businesses accept credit cards. In recent years, you may have noticed a drastic uptick in the number of companies accepting EMV technology, which is the little gray chip installed into most credit cards. If you’re wondering whether your business needs to follow suit, we may be able to help you answer that question.

What is EMV compliance law?

To become EMV compliant, your business needs to change to a terminal accepting credit cards with chips in them. Your customers dip their credit card instead of using the black magnetic stripe on the back when swiping them.

Why the change? EMV-enabled cards are much more secure from fraud. Even if a thief steals your customers’ information using a chip card, EMV cards encrypt one essential piece of data, the chip card security code number. This three-digit code is unique to every transaction, so even if a thief duplicates the card and tries to use it in a store, the card will be declined because it won’t be able to provide the encrypted number.

Previously, before EMV compliance came into the picture, banks had to pay businesses back for all fraudulent charges. Visa and Mastercard decided it was time for U.S. merchants to implement changes to deal with fraud at the source — especially with the U.S. being one of the top producers of fraudulent charges. Therefore, Mastercard and Visa set a deadline of October 2015 for U.S. retailers to switch to terminals with chip readers. When chip cards were introduced in the United Kingdom, point-of-sale fraud dropped by 56%, and there is already evidence the United States has seen a decline in fraud.

However, since there was no law stating retailers must comply with Visa and Mastercard’s demands, the companies needed to figure out a way to penalize companies for not switching. That’s where the “liability shift” came into play. After October 2015, Visa and Mastercard stated if your business didn’t have the appropriate chip-enabled technology, your company would be held responsible for any fraudulent charges. Therefore, switching to EMV technology became an insurance policy against you having to pay for false purchases.

The liability shift seems to be working, as 80% of U.S.-based stores currently accept chip cards.

Are card chips and chip readers still secure?

As of October 2015, all businesses were expected to replace stand-alone terminals with EMV-enabled card terminals because it is more secure from fraud. Therefore, using an EMV-compliant terminal in your business makes it less likely you will unknowingly accept counterfeit cards for purchases.

To steal information, hackers infect terminals with software that reads the account numbers from the magnetic strip or the chip of your card. They can then use these to create counterfeit cards. EMV cards contain a chip with an encrypted number unique for each transaction. A fraudster needs this number to complete false transactions, so your terminal is less likely to approve the purchase. EMV also requires a PIN, which can make it more tricky for fraudulent charges to go through.

It’s important to note EMV cards don’t encrypt any of your customers’ data besides the chip card security code number. Therefore, thieves can still read sensitive information off of a chip. EMV simply lowers the probability of the thief being able to use a fake card with those account numbers. Additionally, EMV compliance has no impact on online purchases.

What EMV compliance law means for businesses

Does it make sense for your business to shift to EMV technology? Maybe. If you’re a mom-and-pop donut shop and the largest transaction you make is typically under $50, the expense of switching to an EMV terminal might not make sense. New terminals can cost anywhere from $50 to $600. Your business is probably less of a target than some others. Like we mentioned, you won’t get fined for not using EMV technology. It may mean, however, a few of your customers will get free donuts, and the banks won’t pay you back for the expenses.

Also, if you run a convenience store with gas pumps, you have an extended deadline, until October 2020, to switch over. Seventy percent of convenience store owners haven’t yet due to a lack of funding, software or the complexity of the change. Furthermore, if you run an online or e-commerce business, you won’t have to worry about switching anything for EMV compliance. This expectation affects only in-person transactions.

On the other hand, if your business has an extensive amount of credit card transactions you couldn’t afford to cover if it were fraudulent, it may be in your best interest to become EMV compliant. That way, the banks will repay you if any of your customers’ purchases are fraudulent. For some businesses, the peace of mind is worth the initial cost.

Whether or not your business needs to consider EMV compliance in its future depends on the type of business you run and the amount of risk you are willing to take on. For some, it may not make sense to pay the extra money for its customers to use chip cards. For others, the lack of liability for fraudulent charges may far outweigh the expense of transitioning.

Disclaimer: This content is not provided or commissioned by the credit card issuer. Opinions expressed here are author’s alone, not those of the credit card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer. This content was accurate at the time of this post, but card terms and conditions may change at any time. This site may be compensated through the credit card issuer Affiliate Program.