October is an exciting time for restaurants. This year, besides the usual preparations for holiday menus and promotions, restaurant owners are focused on a new credit card payment standard: EMV.
There are a number of factors to consider when deciding to adopt new EMV technology in your restaurant — and it is your decision, as the switch is not mandatory.
As a restaurant POS system that offers our own credit card processing, Toast has seen and heard a number of questions about the new chip-and-signature cards, the liability shift, and what this means for restaurant operations. Read below for a full review of the most popular questions we’ve received and learn more about how EMV might affect operations in your restaurant.
1. WHAT DOES EMV STAND FOR?
EMV stands for Europay, MasterCard, and Visa, the three companies responsible for creating the EMV credit card standard. The EMV standard will require credit card companies to discontinue all traditional magnetic stripe credit cards in favor of EMV chip cards. EMV is already the primary credit card standard in over 80 countries all over the world. Several stores in the U.S. such as Wal-Mart and Target have already introduced hardware that accepts EMV transactions.
2. TELL ME MORE ABOUT THE LIABILITY SHIFT.
On October 1, 2015, liability for counterfeit fraud shifted from the card issuing banks to whichever party (the merchant or issuing bank) is not capable of completing an EMV compliant transaction. In layman’s terms, that means that, without hardware that accepts EMV payments, you couldface charges if a fraudulent credit card is processed in your restaurant.
If a consumer presents a traditional magstripe card (a card that is not chip-enabled), there is no scenario in which the merchant can be held liable. If a consumer presents an EMV chip card, but the merchant does not have EMV compliant card readers, and a transaction turns out the be fraudulent, then the merchant would be responsible for the value of that transaction.
3. WHAT’S THE DIFFERENCE BETWEEN EMV-COMPLIANT CREDIT CARDS AND STANDARD MAGNETIC STRIPE CARDS?
Traditional magnetic stripe cards require only a swipe and a signature. EMV cards, on the other hand, have an embedded microprocessor chip to verify the card on compatible card readers. In order to complete the transaction, cardholders must “dip” their card into the EMV reader, and then either sign or enter a pin number to verify their identity — all without removing the card from the reader.
This two-factor authentication process adds an extra layer of protection against fraud compared to the swipe and sign method. The idea is that the extra layer of security should make it more difficult for criminals to use counterfeit or stolen credit cards. The U.S. is only offering chip-and-signature cards for now, but will likely move to chip-and-pin cards in the near future.
4. MY POS SYSTEM IS PCI COMPLIANT. DOES THIS APPLY TO ME?
Even if your current system is PCI compliant, you will still be liable for fraudulent transactions that occur at your restaurant if you do not have a system that accepts EMV cards. That’s because PCI compliance and the EMV standards address two different aspects of security. While PCI compliance is designed to protect the consumer’s data once a transaction is initiated, EMV standards are intended to verify that the card being used is not counterfeit. In order to protect your business, your payment system needs to meet additional EMV regulations, even if your current system is PCI compliant.
5. DO I ABSOLUTELY NEED TO UPGRADE TO AN EMV DEVICE?
While the major credit card companies (i.e. Visa, MasterCard, Amex, Discover) expect all merchants to have EMV compliant terminals, there is no law that requires merchants to upgrade. Businesses that decide not to introduce EMV will not face any fines for failing to upgrade.
For businesses that sell valuable goods or that historically have particularly high fraudulent chargeback rates, upgrading to EMV may make sense. Restaurants and other foodservice establishments, which typically have very low chargeback rates (0.01%), and even lower fraudulent chargeback rates, will have to weigh the potential risk of not being EMV compliant with the potential downsides of upgrading to EMV terminals.
6. WHAT WILL MY NEW PAYMENT WORKFLOW LOOK LIKE?
Speaking of potential downsides, here’s one. The new payment process requires payments to be finalized before removing the card from the terminal — and the customer must be present throughout the entire transaction. If the card is a chip-and-signature card, the payment workflow look something like this:
Waiter drops off bill
Customer puts credit card into portfolio
Waiter brings an EMV terminal to the table
Waiter opens check in the terminal and inserts customer card
Waiter hands terminal to the customer to complete the transaction, remaining nearby to answer any questions
Customer signs after chip is verified
Waiter completes transaction, prints receipt, and delivers to customer
With tablet POS systems, this tedious workflow can be mitigated. For example, customers can opt for email or text receipts rather than paper receipts, limiting the time your servers walk back and forth to the main POS terminal.
7. HOW WILL MY SPEED OF SERVICE BE AFFECTED?
An EMV transaction can take anywhere from 5 to 10 seconds according to Javelin Strategy & Research. This new payment process will definitely alter the payment flow, not only for restaurant checks, but also for tips and bar tabs. Operators will no longer be able to return a card to a customer before completing a transaction. At bars, this can result in confusion as customers may get their drinks and then leave their cards behind without paying. However, in order to minimize slowdown in the future, the importance of quality staff education cannot be understated.
8. HOW CAN I TRAIN MY TEAM ON EMV TRANSACTIONS?
Your servers, bartenders, and even managers need to know how the switch to EMV readers will affect the business. They should also be able to counsel customers if they’re confused, as many will be upon first use. Your staff should be EMV experts.
Teach your staff what the EMV chip looks like, so they know whether to grab the EMV reader or to just use their regular payment process. They should know to insert the card, not swipe it, and never to remove the card before the transaction is complete — otherwise, the whole process will need to start over again. While the U.S. is moving to chip-and-signature cards, they may serve people from out of the country with chip-and-pin cards and in that case, they should know how to coach customers through that kind of transaction as well. Overall, they should be prepared to help guests, and to make sure they’re comfortable using new EMV technology.
9. WHAT KIND OF SOLUTION SHOULD I LOOK FOR?
Different POS systems will offer different hardware. However, not all EMV readers are equal. If a restaurant owner does decide to switch to EMV-compliant hardware, they have a slew of options to consider. Our advice? Get a mobile, lightweight EMV reader that’s capable of accepting both magnetic stripe cards and both chip-and-signature and chip-and-pin EMV transactions. While the U.S. is only transitioning to chip-and-signature cards for now, you’ll have a leg up in a few years when the transition continues, and won’t have to buy new hardware again.
It’s also important to know what your POS vendor is offering, and research other options. Many POS vendors are offering stationary EMV readers, or simply offering to pay a certain amount of the EMV fraud-related chargebacks rather than offer a hardware solution. Some POS systems will also require customers to switch their current credit card processor and select from a small list of processors that are EMV-certified in order to switch to an EMV terminal, which could exacerbate your already high credit card processing rates. Do your due diligence, and research the best solution for your restaurant.
10. WHAT SHOULD I PREPARE FOR IN THE FUTURE?
October 1st is just the beginning of a long process to convert to chip-and-pin and chip-and-signature credit cards in the U.S. As of Sept. 15, Visa says U.S. issuers have distributed 151.8 million Visa-branded chip cards, and more than 314,000 merchant locations have chip-enabled POS terminals out of an estimated 8 million POS terminals.
A full migration could take between five and seven years according to UL LLC, a transactions security testing provider. Javelin forecasts that 33% of all credit cards will have chips by the end of 2015, reaching 43% in 2016 and 56% in 2017.
There’s still a long time until all merchants are EMV-compliant and until all consumers have EMV chip cards, and even longer until everyone is educated about EMV.