Credit Card Chip Reader Advantages (and Disadvantages)

As credit card, or EMV, chips become more common, so too are the credit card terminals that accept them. According to Visa, 71%, or 511.1 million, of its U.S.-based credit and debit cards now have chips, a figure that represents more than a doubling of chip cards over a three-year period. Across the U.S., 3.1 million – roughly two thirds of – merchants are now EMV-enabled.

Even so, credit card chip readers are not a legal requirement for merchants to accept EMV cards (with the exception of merchants who wish to accept contactless payment methods. See below). Since these terminals are not required, you might be wondering whether it makes sense to upgrade your existing terminals. Keep reading to discover the key advantages and disadvantages of using a credit card chip reader.

Advantage 1: EMV Chip Readers Can Lower Your Risk of Fraud-Related Losses

A major driver in the shift to EMV credit cards is improving security. When a chip-enabled card is inserted into a chip-reading terminal and the cardholder enters a PIN, it generates a unique authorization code that can be used only once. Traditional magnetic stripe transactions, where the card is swiped, uses the same data every time. This means that the information could be duplicated and then used illegally.

Prior to the introduction of EMV cards, the responsibility for losses due to fraud rested with credit card companies. But as of 2015, merchants became liable for fraudulent losses on chip cards, a change known as the EMV Liability Shift. Now merchants are at risk of bank- and customer-initiated chargebacks any time they swipe a chip card instead of processing the transaction with chip-reading technology. Making the switch can save businesses big: according to Visa, merchants who upgraded to credit card chip readers saw an 80% decrease in counterfeit fraud dollars between 2015 and 2018.

Advantage 2: You're One Step Ahead for Accepting Contactless Payments

In recent years, you might have noticed an increase in customers wishing to process transactions using their mobile devices, from iPhones to Fitbits. And mobile payments are only getting more popular: the market for contactless payments is expected to surge in the next few years, with a compound annual growth rate (CAGR) of 37.8%.

Mobile payments rely on a technology called Near Field Communication (NFC), which securely stores and transmits card information. But while this technology works on some legacy magnetic stripe data readers, as of April, Visa introduced new rules requiring that all terminals accepting contactless payments actively support EMV technology. As mobile payments proliferate, upgrading to a chip-reading credit card terminal that also can accept contactless payments, such as PayJunction’s Smart Terminal, increasingly makes sense.

Disadvantage 1: Some Credit Card Chip Processors Can Slow You Down

The very thing that makes chip cards more secure can also slow some chip transactions down. In order to generate a unique code for each transaction, credit card chip readers generally require an added piece of software known as middleware. This so-called middleware runs outside the credit card hardware, passing transaction information between the terminal, the POS system and the processor, communications that add time to each transaction.

But PayJunction’s Smart Terminals are capable of bypassing the EMV middleware, without sacrificing security. That’s because the Smart Terminal connects to your computer via ethernet instead, and is cloud-controlled so cardholder data is never stored on your device. This bypass can shrink the amount of time required to process a chip transaction down to just 3.61 seconds, or nearly four times faster than an EMV terminal that requires middleware.

Disadvantage 2: Paying for a New Terminal When Your Old One Still Works

Many business owners aren’t keen to spend money on upgrades when the old way of doing things seems to work just fine. If you have a working credit card terminal, then it might seem like a waste of money to switch to a chip card reader. But considering the reduced risk of fraud losses and other advantages, upgrading can be more cost effective than you might think – while also offering some auxiliary benefits you may have considered. Opting against an upgrade is actually a disadvantage in and of itself, and can put your business at greater financial risk.

Smart Terminals also allow you to ditch paper receipts, which can also be a drag on your bottom line. From a receipt printer to cartridges to paper rolls (not to mention the time and money required to organize and store all that paper), outdated credit card terminals can cost you in ways you may not have considered. Smart Terminals can also help you reduce your risk of losses arising from fraud via features such as signature capture, which can provided added verification as needed or required, and secure, long-term electronic storage of transaction records, which allows you to quickly and easily retrieve receipts should you need to verify a purchase.

Have you made the switch to a credit card chip reader yet? If so, tell us what you’ve found to be the biggest advantages and disadvantages so far.