Small Business, Big Lessons™ – Technology & Liability

A small business owner experiences enough daily challenges, but one in particular may end up costing more money than most would expect. If your point-of-sale system is not able to accept EMV cards – more commonly referred to as “chip cards” – then you may be liable for fraudulent or contested transactions.

The recent shift toward chip technology and accompanying merchant liability for not adopting said technology began a few years ago. The first major push for large-scale adoption began in October 2015, and the second shift is underway this year.

Changes affect everything from ATMs to gas pumps, and October 2017 represents a significant deadline for merchants of all sorts to get chip-accepting systems in place as financial responsibility moves to businesses that did not implement ways to accept and process a chip transaction when a chip-equipped card is presented. For magnetic strip cards that do not contain a chip, nothing will change liability-wise, but those are becoming increasingly scare as major banks and card-issuing institutions require customers to make the change to chipped cards.

It’s up to the end merchant to understand their potential liability when credit card issuers and others in the processing chain have implemented current technology, and looking to other businesses that have not yet implemented chip systems offers no protection as a reason to not upgrade offers no protection. If a chip is present and the card is processed as a mag card, any fraudulent or contested purchase will leave the merchant 100 percent liable. If a chip card is processed using the chip, any fraud is the responsibility of the card issuer. If a card only has a magnetic strip and is processed accordingly or if a charge occurs without a physical card present, the responsibility again falls on the issuer.

It’s important for end merchants to understand the risks of not having current technology meaningfully implemented, and both the short and long-term costs that could be incurred by failing to keep up with current standards. By running an outdated system, you run the additional risk of being compromised by hackers taking advantage of ineffective encryption. It’s never easy to spend the money to upgrade a system, especially when it seems to be working just fine, but upgrades quickly become a matter of potential risk. Is it worth potentially losing more money and business by having security breaches and fraud claims? The short answer here is “no.”

Think through: Every business will have customers challenge transactions via their bank, for fraud reasons or otherwise. If you’ve protected yourself as a merchant, you’ll have the opportunity to contest these claims and a much higher likelihood of winning. The cost of losing, the cost of not updating your payment methods, can be substantial – and in small business, you feel every financial blow.

Of course, not every customer with a contested charge will be a victim of fraud or looking to cheat your business and their bank. Sometimes, it can be an honest mistake – like a significant other making a purchase without their partner’s knowledge or a forgotten tip on a receipt. Even an honest mistake can cost you money as a business, and fraud typically ramps up as me move into the holiday season. With that in mind, it may be wise to consider upgrading now to minimize your exposure to liability.

About the Author:

Gregory Woloszczuk is an Entrepreneur and experienced tech executive that helps small business owners grow their top and bottom line. Gregory believes in straight talk and helping others see things they need to see but may not want to with a focus on taking responsibly for one’s own business. He and his wife, Maureen, started GMW Carolina in 2006.

Gregory has been fortunate to have been part of building teams for companies that went through hyper-growth as well as his own company. He also has experience in working through economic downturns and taking responsibility to fix what is in his control. The focus has always been working with partners, customers, and building a successful business channel. His range of experience includes marketing, sales, support, training, and operations.

Gregory holds an MBA from Nichols College.