How the Shift Away From Cash and Magnetic Stripe Cards Will Affect You
It’s the start of the new year, which means you’ve probably been seeing your fair share of headlines predicting the top trends for 2016. But, as an accountant, there’s one area you should pay particular attention to: new payment technologies. The payments landscape is changing fast and this year will see a massive shift in how customers expect to pay at businesses, large and small.
Here’s what’s happening:
The shift away from cash. Cash isn’t necessarily going away any time soon, but customers are carrying it around less and less. A Nilson Report projects that cash volume will decline by 24%, and check payment volume will decline 46%, in the United States by 2018. At the same time, card payment volume is set to grow by more than 50% in the same period. If your clients are still cash only, it’s worth advising them to upgrade their Point of Sale (POS) to accept credit cards.
The shift away from magstripe cards. Magnetic-stripe cards are being phased out in the United States, and banks are now issuing EMV chip cards in their place. Why is this happening? Security. In short, magstripe cards are less than ideal when it comes to preventing counterfeit fraud. Magstripes have been around since the 1960s, are extremely outdated and pretty easy for even an unsophisticated fraudster to clone.
EMV chip cards, on the other hand, are way more secure. That chip on the top of the card is actually a tiny computer chip that dynamically encrypts bank account details. That makes it nearly impossible for fraudsters to isolate the information on the card into anything meaningful. Countries that have already adopted EMV chip cards as the standard (basically, the rest of the world) have seen a dramatic decrease in certain types of credit card fraud. As more and more consumers get chip cards this year, that’s how they’ll expect to pay.
The liability shift. There’s another reason your clients should accept chip cards: the liability shift, or a change in how banks handle certain types of fraud. This went into effect in October 2015 and is a way for businesses not set up to accept EMV chip cards to be liable for certain types of fraudulent transactions. Previously, banks ate this cost. To protect your clients from any unwanted charges, you should counsel them to get set up to accept chip cards ASAP. You can read more about what this all means in the Simple Guide to the Liability Shift.
The shift toward contactless (NFC) payments. When a cardholder uses a card with an EMV chip, the time it takes to complete the transaction is longer. In fact, transactions are noticeably slower than magstripe cards, something you’ve already noticed if you’ve used your chip card at a merchant or ATM. The lag happens while the technology working to ensure everything checks out, so it’s ultimately a good thing, but not the best experience for the buyer and the merchant.
The fact that EMV transactions are so sluggish is what will likely accelerate the adoption of a much faster form of payment: contactless mobile payments (NFC). The most popular examples of contactless payments are apps, including Apple Pay, Android Pay and Samsung Pay. These mobile payment solutions are just as secure as chip cards and take just seconds to process. They’re also a lot more convenient because they all happen through your mobile device.
We’ll see more and more customers who want to pay via their mobile wallets in 2016, so it’s worthwhile for businesses to upgrade their POS to accept chip cards and contactless payments like Apple Pay.
Editor’s Note: Square creates tools that helps sellers of all sizes start, run and grow their businesses. Square’s register service is a POS system with tools for every part of running a business, from accepting credit cards and tracking inventory to real-time analytics and invoicing.