What is the EMV Mandate, Chip and PIN?

In Uncategorized on June 19, 2014 at 3:42 pm


What is the EMV Mandate, Chip and PIN?  How Does it Effect Merchants in the US?

EMV Mandate- Europay, Mastercard and Visa Mandate.

Arguably one of the largest changes in the landscape of payments in the USA is set to happen by October of 2015.  At this time, all retailers, no matter how big or how small, are mandated to begin accepting payments through Chip and Pin compliant equipment (congrats equipment manufacturers).  What is Chip and Pin?  In most other countries, credit cards are issued with a security chip in them and an associated PIN number, much like your debit card today.  The United States is the largest holdout to adopting this technology.  Chip and Pin cards eliminate the need for a magnetic stripe. In place of “swiping” the card, it has a micro-processor chip imbedded in it and is inserted into a slot on the machine where the “chip” is read and the cardholder is subsequently asked for their PIN number.

The purpose of this is to reduce fraud in a card-present environment (this is not applicable to non-card present business, e-commerce, etc).  I have a small business, why do I need to do this? Simple answer is nobody is immune to card fraud.  Card present fraud is rampant in the US, and today the card issuing banks assume the liability of loss when a fraudulent card is swiped in a card present environment. Naturally, the card issuers would prefer to stop paying out millions due to fraudulent sales and would love a good reason to shift that liability to the merchant.  I am sure there is a strong element of protecting their card holders from the consequences of having their card data compromised.  So does it work?  In the US this is still TBD, although in countries that currently have this technology in place, the rate of fraud in a card present environment is significantly lower than the US, where this technology has yet to be deployed to the masses.

How does this impact my business?

Simply put, by October of 2015 it makes good sense to adopt a terminal that is Chip and PIN EMV compliant.  If by this date you do not adopt compliant equipment, your business will be held liable in the event it accepts a fraudulent credit card (liability shift).  Currently you are protected against fraud (when a card is swiped and you have taken the proper steps to validate signatures), and the card issuing banks take the hit.  Furthermore, for those of you who care about being compliant, the new PCI regulations have significantly narrowed down the types of equipment that will be PCI compliant.  As of May 2014, processors have been instructed to no longer build files for and reprogram equipment that is not EMV Chip and PIN compliant.  Bottom line:  not becoming compliant  will cost you more than trying to dodge it.

There may also be Interchange implications (interchange is the cost per transaction that consists of a percentage and a transaction fee. Interchange is set by the card issuers/issuing banks and is the universal cost per transaction for all merchant processors).  There is rumor that the cost of accepting a card via the traditional means (swiping) will come with a higher interchange cost than if the card is taken via its chip and corresponding PIN (this is still speculation).  This would make sense given a portion of “interchange” that issuers collect is allocated toward the costs they pay due to fraudulent sales.  Given the liability of fraud will shift to the merchant who is not EMV compliant, the losses to issuers theoretically will decrease allowing them to charge lower interchange rates for Chip and PIN sales.


A change of this magnitude particularly as it is applied to the physical equipment and method in which a card is accepted in a swiped environment has not occurred since 1984 when the ZON Jr. entered the market and businesses could run a card electronically and ditch their knuckle buster; or in 1991 the Verifone Tranz 460 came out with its revolutionary integrated printer.  We saw a brief glimpse of this around 2004 when “Smart Cards” were first seriously being discussed in the US, and some Verifone terminals had a “smart card” reader integrated into them.  The 2015 deadline, and an influx of Chip and PIN terminals, open the flood gates for all kinds of invasive sales species to infect business owners with scare tactics and excessively high priced equipment or, even scarier, FREE equipment to mask high rates and hidden fees.  Be careful of who you let in your doors to discuss this with.  Often times you will find them hiding behind “state of the art compliant equipment” with rates and fees that are followed by an *.  FYI an * following rates and fees is never a good thing, it’s basically telling you that the rate we are showing you will only apply to about 5% of your transactions and everything else will get slapped with a big fat surcharge (stay away).

Bottom Line…

Yes, you need to get compliant.  Yes, you will need new equipment sooner, rather than later.  Do you need to drop everything you’re doing today?  NO, the date of compliance is October of 2015.  Today, and even more so in the coming months, this equipment will be as available as air.  If you process with a reputable company the equipment should cost no more than $200-$300.  Yes, I said $200-$300 (free equipment usually comes at a greater cost on the back-end sooner or later) and I have seen some companies selling for over $500-$1000.  The nominal cost most small merchants will pay beats the pants off the hundreds of thousands to many millions mid sized to big box retailers will have to pay.  As unlikely as it may seem to most business owners, being compliant and protecting your business is a heck of a lot better than footing the bill if and/or when you accept a fraudulent card.  If you are considering or going to change processors anytime soon, now is a good time to get compliant equipment, should make for an easy transition.

One last word of advise on this:  if you need new equipment DO NOT BUY or ACCEPT NON-Chip and PIN equipment, and DO NOT LEASE IT and pay thousands for 48+ months!  Much sooner than later you will be getting something new and need to retrain your staff, yet again.

Call your current processor and discuss becoming compliant with them.  If you don’t have a dedicated account manager to call or get lost in a calling tree, or just want a second opinion, you know what to do…


Perry T.

About Perry T.:  Perry Tatooles is a 10-year veteran of the merchant services industry.  He currently manages several sales channels for TransNational Bankcard.  In his many years of service, he has worked with thousands of merchants ranging from Fortune 500 companies to startup sole proprietorships.


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