For any industry or operation that accepts credit cards, fraud is a cost of doing business. According to financial services company FIS, the amount of credit-card fraud in the U.S. is estimated at more than $8.6 billion a year and rising. Additionally, 47 percent of the world’s credit-card fraud happens in the U.S., even though Americans only account for 24 percent of the total credit card volume, according to Barclays.
To combat this rising tide of insecurity, the broader financial community has developed the Europay, MasterCard and Visa standard. EMV requires the adoption of credit cards with embedded microprocessors instead of magnetic stripes on the back. These cards store data in integrated circuits in the card, and can either be “dipped” into a compatible machine to be read or they can be read from a short distance away using radio frequency identification technology. They require either a consumer's signature or a personal identification number to use.
This migration requires credit-card companies to send consumers updated credit cards and requires merchants, such as hotels, to install credit card readers that accept the new cards.
Oct.1 marked a major milestone for the EMV process. On that date, the liability for a face-to-face fraudulent transaction switched from the credit-card company to the merchant, if the merchant is not equipped with updated chip equipment.
According to Brian Colodny, president and CFO of Chargerback, a lost-and-found solutions company that serves the hotel industry, hotel reservation activity that is not face to face is exempted from the Oct. 1 deadline because reservation systems that comply with the PCI and EMV standards are not widely available yet.
David Johnson, director of information technology at Washington Duke Inn & Golf Club in Durham, N.C., and a member of Hospitality Financial and Technology Professionals, agreed that there's still some catching up to do before the hotel industry as a whole is ready.
"The industry at the merchant level isn’t ready," he said. "Most [property-management system] and [point-of-sale system] vendors, unless your using the same payment gateway and payment processor, are still waiting for the ability to accept EMV transactions."
The chip-enable technology is expected to reduce face-to-face credit-card fraud in the U.S. as it has in other parts of the world, but it's not going to happen overnight.
While the liability shift took place on Oct. 1, just like any large technology shift, not everybody is on board to start with. According to Maryam Cope, VP of government affairs for the American Hotel & Lodging Association, only 36 percent of Americans’ credit cards will have EMV chips by the end of the year, but that number will be around 67 percent by the end of 2016.
"These are new cards for everybody in the U.S. and new machines for everybody in the U.S. There's going to be a significant transition period," Cope said. "People should expect some hiccups and frustrations along the way, but in terms of helping with counterfeit cards, I do think it is an effective solution. That being said, I also want it to be very clear that this isn't going to solve all data breach and cybersecurity problems. This is targeted at one very specific problem, which is counterfeit cards. It is a very thorough solution for that problem."
Operational changes will be needed to allow guests to dip their cards, and hotels will implement guest-facing credit-card terminals at front desks, according to Michael Blake, EVP and CEO of Hospitality Technology Next Generation, a global trade association dedicated to enhancing the deployment of technology in hotels.
Cope said merchants and consumers both will have to get used to a slower transaction process.
“In general there has been hesitancy to slow down the checkout process for retailers and merchants for at large,” she said. “The card is actually taken into the machine, you wait, and then they hand it back. It's actually quite a bit slower. The front desk at hotels and consumers should have a different expectation as to how long it's going to take to process the card. You're not just going to be able to do the quick swipe at the machine if you're able to use the EMV chip.”
EMV technology has been in use for some time in other parts of the world, including Europe, Canada, Latin America and the Asia/Pacific region, and while they have seen a decrease in face-to-face fraud, Johnson said hotels will need to be more vigilant in other areas: "Those countries that had implemented EMV processing saw an increase in ecommerce and card-not-present systems, so it’s important to note that EMV isn’t a silver bullet for eliminating fraud."