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The Small Business Owner's Guide to Chip Cards


credit-card-chip.jpgLong gone are the days when a shopper was required to carry large amounts of cash in a wallet, money clip or purse. Today, everything has gone digital, including money. While credit and debit cards are not a new concept, online shopping and acceptance at nearly every retail outlet has made them more popular than ever. The problem with these traditional credit and debit cards is that the numbers can easily be secured by scammers. This means that a scammer can rack up thousands of dollars in debt or drain a bank account in a matter of minutes. This is a frightening concept for both consumers and business owners. To combat identity theft and fraud, which nearly 18 million Americans experienced in 2014 alone, credit and debit cards are being redesigned with “chip” technology to make fraud or theft more difficult.

What Is a Chip Card?

A “chip” card simply refers to a credit or debit card that uses more advanced technology than traditional cards. They are also commonly referred to as EMV cards, which stands for Europay, Mastercard and Visa, the companies that developed the new technology. At first glance, the cards look similar to any other card a metallic square on the left side of the card. This square is an embedded microchip that is able to interact with the point-of-sale terminal or ATM.

How Do They Work?

Cards equipped with “chips” do not work in the same manner as traditional credit or debit cards. They use encrypted data and a complex, secretive language in order to interact with a more advanced point-of-sale terminal or ATM. The transaction and payment data on the chip is always changing, which makes it much more difficult and expensive for to counterfeit a chip card. Instead of swiping the card at the terminal with magnetic stripe cards, the card is inserted partially into the terminal where the card owner may be prompted to sign or enter a PIN number. The encrypted data on the card can then be read and decoded based on the information sent to and received by the financial institution. Upon approval, the cashier is notified by the terminal and the transaction is completed. This process takes significantly longer than the traditional swiping, although it is much more secure.

How Can My Small Business Accept Chip Cards?

Chip cards require a completely different payment terminal than the old standard magnetic card readers to accept them. “Chip” cards are, however, equipped with a magnetic stripe which can be swiped and used as a traditional card. Although these smart cards have the magnetic stripe, businesses owners who allow them to be swiped will be held liable (along with their payment processing company) for cases of fraud in these circumstances. Formerly, before October 2015, the credit card company was held liable. This is a huge risk for small business owners to take. To prevent being held liable in cases of fraud, small business owners who wish to accept chip cards should invest in updated point-of-sale terminals and ATMs that are specifically designed to accept these cards.

Alternatives to Chip Cards

Small business owners who do not wish to invest in new point-of-sale terminals that accept chip cards, yet do not want to be held accountable for accepting them, may consider alternative forms of payment. While cash or a non-chip cards are an option for the time being, small business owners may find that these more traditional payment methods limit their business. In these instances, owners should consider accepting mobile payments, where payments are sent securely via smartphone. There are numerous options that are rapidly increasing in popularity and they are all relatively inexpensive.