Chip Cards Could Hold Small Business Owners Liable for Fraud

Chip-enabled credit and debit cards are designed to protect cardholders against fraudulent transactions.

But what most small businesses don’t know is that the cards may soon create more liability.

A recent Wells Fargo survey found that more than half of small business owners are unaware that merchants who don’t support chip-card technology by Oct. 1 could be held liable if a customer commits a crime using one of the cards.

The U.S. credit card industry is converting to EMV chip cards to help fight the increasing prevalence of fraud committed by cards with magnetic strips.

Chip-imbedded cards protect against fraudulent charges by encoding cardholder information with encrypted data that changes with each transaction. They also are considered more difficult to counterfeit.

While chip cards have been widely used in Europe for more than a decade, they have been slow to catch on in the United States. Among business owners who accept credit and debit cards, the survey found only 31% said their existing credit card processing system accepts EMV chip cards.

Even with the October deadline quickly approaching, business owners don’t seem in a rush to update their systems. Just 29% said they intend to charge their equipment before the deadline, 34% said they will at some point after the deadline and 21% said they never plan to make the switch.

When asked why they don’t plan to upgrade their payment system, 48% of owners said they don’t believe it will have an impact on their business. About the same (46%) said they don’t want to pay for the readers and other equipment and 41% said they aren’t concerned about the increased liability threat.

The survey of 600 small businesses conducted July 6-10 showed owners also have mixed feelings about whether shifting the liability to retailers and merchants will actually reduce fraud. Forty-two percent say it will and 42% say it won’t.

Card issuers eventually plan to replace all magnetic stripe cards will chip cards. EMV chip cards have already been issued to 120 million Americans, a figure that is expected to reach nearly 600 million by the end of the year, according to the Smart Card Alliance.

To prepare small businesses for the EMV liability shift and encourage owners to adopt the chip card technology, Wells Fargo has launched an awareness campaign with webinars, videos and expanded merchant services support.

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