On October 1, merchants were required to have special new creditand debit card payment terminals in place that are designed toaccept special "chip" credit and debit cards.

The updated cards, which are known as EMV (Europay, MasterCardand Visa) have small chips that communicate unique data with eachand every transaction. These new cards require a special type ofpayment terminal to process these transactions.

The technology is designed to prevent card theft from Internetthieves who seek to hack into terminals and steal credit and debitcard information. A specially-designed chip that is embedded in thecard can be read only once, thus reducing the opportunity for fraudfrom theft. That is, if a hacker tries to use stolen chipinformation from a specific point of sale, the stolen transactionnumber that is created for the fraudulent charge cannot be used asecond time. Thus, the transaction will be declined.

Businesses that do not install these special terminals, whichcan read the unique data associated with the EMV card transactions,are now responsible for the costs associated with any credit ordebit card fraud that results from fraudulent activity on the oldterminals. "If you're given the chance to upgrade to EMV-capableequipment, but don't do so within the above timeframe, you will beheld financially liable for security breaches after October 1,"said Anthony Lucatorto, senior vice president, association partnerdivision, for the National Federation of Independent Business(NFIB). What does "given the chance" mean? If a payment processordoes not offer EMV-compliant upgrades to the businesses it serves,then any financial responsibilities related to breaches would fallon the payment processor, not on the business.

The Electronic Transactions Association, the global tradeassociation representing more than 550 payments and technologycompanies (including Visa and MasterCard), expects that only about45 percent of the eight million U.S. businesses that acceptelectronic payments (credit and debit cards) will implement the newterminals by the end of 2015.

However, the percentage of smaller businesses doing so isexpected to be much less. "Not only is this expensive, but smallbusinesses just aren't prepared for the shift," said the NFIB in aSeptember 25 press release.

And, according to data from the Strawhecker Group, a managementconsulting firm specializing in the merchant acquiring sector ofthe payments industry, smaller merchants are indeed moving slowerto make the transition than are larger merchants. As of lateSeptember, only four percent of merchants with fewer than 20employees had adopted the EMV-compatible terminals. In addition, afull 72 percent of small businesses surveyed reported having noplans to install the new terminals by the October 1 deadline.

Besides leaving themselves open to financial losses associatedwith credit and debit card fraud, small businesses that do notimplement the new terminals may lose customers as well. Researchconducted by the Electronic Transaction Association found that 84percent of consumers take retail payment security into account whenthey are deciding where to shop, and 69 percent of consumers arelikely to shop at retailers with the most advanced payment securitytechnologies in place, even if it means driving a few extramiles.

Still, even businesses that do install the new terminals won'tsee all of the cards being swiped being EMV-compliant. According toresearch conducted by the Aite Group, a financial servicesconsulting firm, only 70 percent of credit cards and 41 percent ofdebit cards in the U.S. currently support EMV. "Taking the world'slargest card market from mag stripe to EMV is a massiveundertaking," said Julie Conroy, research director for RetailBanking at Aite Group.

While businesses that swipe non-compliant cards with thecompliant EMV terminals won't be responsible for fraud from thenon-compliant cards, they will still be responsible for fraud thatoccurs from EMV-compliant cards swiped through non-EMV-compliantterminals.