EMV 101: What Small Businesses Need to Know About the Switch to Chip Card Technology

Hello, everybody, and thank you for joining us today. My name is Tony and I will be moderating today's session, and I would now like to begin today's conference and turn the call over to Meredith from the SBA for opening remarks.

Wonderful. Thank you so much. Meredith Olafson here with the U.S. small Business Administration. I'm a senior advisor to the administrator. On behalf of Administrator Maria Contrera's suite, the SBA is thrilled to be partnering with Scotland on this important education effort. Thank you to Leah Demetrios and the entire team at Square, whom you'll be hearing from shortly for their leadership on this critical topic. And thank you to all the folks who have joined today on this webinar to learn more about the migration to EMV technology. Small businesses are the engine of the economy, creating two out of every three net new private sector jobs here. Here at the US Small Business Administration, we're responsible for advocating on behalf of America's 28 million small businesses to make sure that they have the tools and resources they need to start and grow their business. We describe our core mission at SBA with three Cs, access to capital, counseling and contracts. We're best known for providing access to capital, but we also promote free counseling and business advice. And that fits squarely within the mission and the purpose of our partnership with square. So we have a national network of partners in every state that offer tailored advice to help your business grow. This includes over 900 small business development centers that specialize in one on one advice, counseling and training, more than 100 women's business centers focused on helping women Entrepreneurs, and our SCORE partners, which consist of over 12,000 volunteer executive mentors who are invested in your success as small business owners. To learn more about how the SBA can help your business, Visit us@sba.gov and it's now my pleasure to introduce my colleague, Chris Upperman, who is a senior advisor in our Office of Entrepreneurial Development, who will say a few words.

Thank you, Meredith. We're very excited to be on this webinar and this call today to provide you with relevant and timely information. As Meredith mentioned, I'm a senior advisor in the Office of Entrepreneurial Development, and what we do is offer timely counseling, training and technical assistance and work on policies, programs, and special initiatives that can reach small business owners and entrepreneurs across America. And so with this partnership with square, we're very excited to bring with you this very relevant information that will impact many of you coming into the fall. We just want to really provide an opportunity for you to learn what changes are going to take place and provide this information for you. And with that, thank you so much for allowing me to be on the call.

Hi, everybody. This is Demetrius Marantis from Square, and I'm the head of Square's global policy and government relationship. I'm joined here by Owen Jennings from Square's business team. And as Meredith and Chris mentioned, we're here to talk about the imminent switch that we're all going to experience from magnetic stripe payment cards to chip cards, and what that means for you as small business owners, as well as alternative payment methods that you will likely see more and more from your customers in the coming months. As Meredith and Chris said, we are delighted to be working closely with the SBA to provide small businesses with more information on EMV and the upcoming liability shift that we'll discuss this afternoon. We're grateful to SBA for partnering with us and working with Tony to arrange today's webinar. At Square, we serve millions of businesses, large and small, and work with small business owners in particular to provide the tools you need to start, run, and grow. One of our main goals is to level the playing field for small businesses by making sure that you have the information you need to compete and to put your best foot forward. Too often, technology changes such as those we are experiencing now with credit cards are easily adopted by large companies with deep pockets, but are out of the reach for America's small businesses. And that's why we're partnering with the SBA today to explain to you the upcoming transition in payment technology and make sure that you're prepared to respond. Tony, if we can move to the next slide. So the point of today is to talk to you all about this card shift that's happening in October, from magnetic stripe cards to EMV or chip cards. As small business owners, you need to be able to meet your customers where they are. That means you need to be able to accept payments in a way that's most convenient, safe, and secure for your customers. If you look right now in the average American's wallet, you will likely see some cash, a few magnetic stripes, credit cards, and maybe even a card or two with an embedded chip. In the coming months, the magnetic stripe cards will be replaced by chip cards. And in the coming year years, those wallets will likely be replaced by smartphones. Magnetic stripe cards are pretty outdated. Surprisingly, they're made from the same technology that you would find in a cassette tape here in the United States. We've learned that the hard way, from high fraud rates in the US we've lost $5.3 billion to credit card fraud in 2013. And that's up 14.5% from the fraud rates in 2012. Half of the world's credit card fraud happens in the United States, even though only a quarter of all credit card transactions happen here. So in order to ensure that our payments are more safe and secure and that our customers information is safeguarded, we're making a transition in the United States from magnetic stripe car technology to, to the much more secure chip card technology, or emv, that's already used in most developed countries around the world. As we guide you today through this webinar, we'll explain to you exactly what EMV is, what the transition will look like, what we think payments will look like in the near future, and what small businesses like you need to know to be prepared. But before going into that, we wanted to show you a quick video to give you an overview of what EMV is. And then we'll go into more detail on a lot of the subjects raised in the video.

Most of the things we use every day, like phones and cars, have improved by leaps and bounds since their invention. Yet that magnetic stripe on the back of your credit card is the same technology you'd find in the tape in your Walkman. So our credit and debit cards are about to get an upgrade. This new technology is called EMV, after Europay, MasterCard and Visa who developed it. But it's sometimes referred to as chip cards or smart cards too. These new credit cards will look just like the ones we use now, except for the little chip embedded in the card itself. See, that little chip is actually a tiny computer card doc, and it makes counterfeiting much more difficult. Unlike magnetic stripe cards, chip cards create a unique transaction code every time they're used. The card is dipped and left in place as the chip and reader agree on a secret one time only password which can't say, be copied by a bad guy. Now, while the US Is first in a lot of things like moon landings and holo bladen, we're one of the last countries still using magnetic strike cards. And it's costing us. The US Is home to roughly a quarter of the world's credit card sales, but nearly half of the world's credit card fraud. And credit card fraud isn't a pie we want the biggest slice of. So Americans will soon be issued gift cards. And if you're a business owner, you'll need a way to accept them.

Terrific. So on the next slide, we'll Answer the question as to what is emv? And as the video explains, EMV is a global standard for credit and debit card payments. The standard was named after its original developers, E for Europay, M for mastercard, and V for Visa. This standard is different from magnetic stripe technology. It uses a chip that's embedded in payment cards to authenticate payments. The chip itself is like a minicomputer. It protects customer data and is very hard to counterfeit. So emv, as this slide shows, is more secure. And the reason for that is that the chip card encrypts sensitive information, which makes it much harder for fraudsters to counterfeit than magnetic stripe credit cards. While data on a magnetic stripe card is static, the data on a chip card is constantly changing, making it much harder for fraudsters to access or copy. So, for example, when a buyer places a chip card into the card reader, the chip talks back and forth with the reader in a secret language to authenticate the transaction. That language is different each time the card is entered into a reader. It's important to note, though, that chip cards are only more secure when they are read through specific card readers or card terminals that can speak the language to authenticate the card. So, for example, if you were just to key in the number on a chip card online, the card is no more secure in that instance than a magnetic stripe card. The security comes forth when the card is actually read in a reader that can read EMV cards. And that's what makes everything more secure. So on the next slide, you'll see who uses emv. And interestingly, in the developed world, EMV cards have been the norm for years. If you go to Europe, for example, you'll see people just using cards with chips embedded with them. Most consumers in a market like Europe use chip cards, but they then authenticate their chip cards with a unique PIN number, kind of like the PIN number you use when you go to the ATM to withdraw money. In the US Though, we won't use pins, at least not yet, we'll still verify each payment through signatures, just like we do with magstripe card. Interestingly, as the video said, the US is among the last major market to adopt emv, and this is largely due to the cost of having to replace all of the different MAG stripe cards with chip cards, as well as the cost of having to replace terminals that read Mag stripe credit cards with terminals that read chip cards. It's also due to customer behavior. In the US we like to swipe cost. We are used to it, and that's just the way it's been. But sticking with this old technology has really made us in the United States.

A target for fraudsters.

And again, as I said earlier in this webinar, as well as you saw in the video, in the United States, we only account for a quarter of the world's car transactions, but we account for half of the world's fraud. And so it's time to move on to a new technology. So you may have already seen chip cards. You actually may already have one. Some of them have been arriving in the mail, and some of you may have seen your customers presenting you with chip cards. In the next few months, we're expecting to see penetration of chip cards grow quickly from Square's perspective. Currently, 17% of cards cards swiped at Square merchants are chip enabled, which is up from 3.4% in January. And we expect to see this number up to 40% by the end of the year.

So more and more, you'll be seeing.

Customers presenting you with chip cards in your stores or restaurants or businesses. And this is the thing that's the.

Most important, that if you take away one thing from this webinar, it's very, it's that the reason why.

This is important to all of us and all of you is that in October, there is a liability shift, which means that starting October 1st, you as a small business owner will now be liable for any fraudulent transaction with a chip card if you process that transaction on a terminal or a reader that only reads magnetic stripe cards. So in other words, if a customer comes into your store and you only have a mag stripe terminal, you, not the bank, bear the risk of fraud loss as of October 1st. That's the loss that was previously covered by banks but will now be you will be liable for beginning in October. Now, I'm not saying this to scare you, because there isn't a law that mandates that businesses accept emv. You won't be arrested if you don't have an EMV meter, but you will be liable for certain transactions that will come across your counter.

Just to jump in here quickly, this is Owen Another way of thinking about this is currently, if you walk into the store and you are a criminal with a counterfeit credit card and you purchase a good from that store, you will receive the good and then also the store will receive the money because the issuing bank that issued that credit card will make the store whole and will basically cover that cost. That's largely because banks realize that the magnetic stripe card that they put in market are not all that secure and relatively easy to counterfeit. So basically how you can think about it is what the banks are saying is, well, now we're doing our job and we're putting chip cards out in the market. So we're making sure that in the coming years, roughly 75%, up to 100% of Americans will now have chip cards. So if a store owner does not do his or her part of the bargain and upgrade to a chip card reader, then the banks are basically saying, well, we're not going to cover that cost anymore because if upgraded to a chip card terminal, you may not have experienced that instance of counterfeit fraud. So basically, as chip card penetration increases, the banks are saying, well, you should really get a reader so you could accept chip cards so that we can get rid of this type of counterfeit fraud.

And that's as Owen said, that's exactly why if you look at the schedule chart on this slide, you'll see that your liability as a small business or any business, your liability kicks in. If a customer comes to your store and presents a chip card but you only have a mag stripe terminal, that's when you, as a business owner will be liable for any fraud with respect to that transaction. And as of October 1, 2015, now we've laid out in this chart as well other scenarios where you won't be liable, where the bank still retains liability. And those are, for example, if a customer walks into your store and presents a chip card and you have a chip reader to read that card, you're not liable in that instance for the reason that Owen went through. Likewise, if a customer comes into your store and presents a magnetic stripe card, that customer doesn't yet have a chip card, but you have a chip reader. Again, the bank is liable in that case because they didn't upgrade the card. So they have the responsibility for not having gotten that customer a chip card. So the bank retains liability in that instance. Likewise, if a customer still has a mag stripe card and it's presented at a magstripe terminal, it's the same situation as above, the bank is liable because the customer hadn't yet received a chip card from the bank. And in the last instance, and this is important too, if it's a kip transaction. So if you're accepting, you're keying in a credit card number online, or if you're taking payment over the phone, nothing will change. The bank will still retain the liability. So just to go over this very quickly one more time, as of October 1st, a store owner is liable only in the instance, if a customer comes here, your store with a chip reader and you don't, I'm sorry, with a chip card and you don't have a reader or terminal to accept that card and you run that transaction over a magnetic stripe, you are liable in instances of fraud. And I know there are a bunch of questions that are coming in while we're talking, so why don't we take a little bit of time to answer some of the questions that have come in now before moving to the next slide. Sure.

So one of the first questions that I'm seeing is how do we know when the merchant is using a magnetic stripe terminal versus a chip card terminal. So if you have a chip card terminal and you swipe a chip card on that terminal, the terminal will prompt you to dip the card and read it as an EMV or chip card transaction. So basically what that means is we know that you, I mean not just swear, but it is clear that a seller has a magstripe only terminal versus a combination mag stripe and EMV terminal if you are able to read a chip card as a magnetic stripe transaction. So you really would not be able to swipe a chip card in a terminal if you have a chip enabled terminal. Going on to the next one. Someone asked, please address PayPal Square Swipers for smartphones if it's not already part of this presentation. So we don't want to make this presentation about Square or particular other companies doing similar things. That said, we have a reader that accepts mag stripe cards only. We also have a reader that accepts mag stripe cards and chip cards and most other and PayPal has in the US currently they have a reader that accepts magstripe only cards. They are probably going to bring an EMV reader to the United States eventually, but it's not in market yet.

And if you want more information on any of that, you can always go to our website. But as Owen said, this webinar is more about providing education rather than talking about specific. Sure.

And Stephanie asked, basically she experienced an instance of fraud where the perpetrator had stolen certain credit cards. So there's two basic types of card present fraud. One is counterfeit fraud and the other is what we call lost stolen, no receipt fraud. Counterfeit fraud is largely the type of fraud that we've been talking about today where you could quote, unquote, clone or skim a card so that the card that you're using is not actually tied to your identity. EMV protects against counterfeit fraud. However, if someone had stolen A card, whether it was a mag stripe only card or it was a chip card and then use that card in your store, you're not going to be protected in that instance by using a chip card reader. That said, the issuing bank will still be liable. There's basically no change in the liability structure for lost, stolen, no receipt fraud. The only change in liability is for counterfeit fraud.

That makes sense.

Card not present transactions are the predominant method for Internet e commerce transactions. That is 100% true. So there's no so if you're an E commerce only business and you don't do any face to face transactions in store, then the liability shift will have a much smaller impact on you because there's no shift shift in the liability structure for card not present transactions. Card not present basically means the buyer and the card are not face to face in store with the seller.

A lot of the other questions that are coming in are questions that we will cover in a few other slides. So let's move on to the next slide and we'll come back to any question that we haven't covered in future slides. People have had questions about contactless payments, new card readers and terminals. We will get to all of that in this presentation and then we'll come back and answer any questions that we haven't addressed.

So on this slide, just two quick things are for purposes of small businesses, the liability shift means you're going to need to upgrade to a new reader that is able to accept EMG cards. And when you do that, our whole behavioral pattern is going to change because rather than swipe cards, we're now going to start dipping cards.

And you're going.

To need to leave the card in.

For a bit of time in order.

For the chip to and the reader to interact with each other in order to authenticate the card. Now as we were talking a couple of questions, specific questions came in with respect to how much longer chip cards will take to authenticate versus magstripe as well as is there a difference in size with chips? And some cards seem to have larger chips and other card seems to have smaller chips. So I'm going to turn it over to Owen who was answering that because we were just talking to each other instead of see you perfect.

Great practice. So it is true EMD transactions take a little bit more time than magspe transactions. So in general, what we see when we look across markets, when we look across merchants with differing setups in terms of Internet connection, in terms of network connection, different types of hardware, et cetera, on average, we see EMV transactions taking about 10 seconds. With Square, they're currently taking about 7 seconds. We're doing what we can to bring that down. And of course I've had instances in Europe where a transaction in say a taxicab has taken 20 seconds, but on average it's about 10 seconds. This compares to about 1 to 3 seconds for a Mag Stripe transaction. So on average, in terms of what you can expect, it should take maybe twice as long. We also think this is a great trade off to make for the added security benefits that you get from emv. And just for the sake of comparison, an EMV transaction is taking roughly the same amount of time as a cash transaction. When you factor in taking money out of your wallet, handing it over to the cashier, the cashier is counting the money, puts it into the cash drawer, finds your change, counts it out, hands it back to you. So the difference between CACHE and EMV is kind of is not all that large, but there's probably something like double the amount. The actual authentication of the card for EMV relative to magstripe. And then just to hit the second question on the different sizes of chips, that is totally normal. I have three different chip cards in my wallet that I'm looking at right now, and they each actually have a different chip. There's a few different things going on. Basically, a chip can be either. So basically there's a few different chip manufacturers who manufacture chips in different ways. And there are a few differences between what chips are designed to do. So it can be a chip and signature chip, a chip and PIN chip. It can do contact list, I mean, only contact EMV or contact and contact list. But the thing that matters for small businesses in the United States is if there is a chip on the card, it will work to be read as a contact EMV transaction, a chip card transaction, the sort of transactions we've been talking about. No matter what, that's the basic thing you need to know. There could be some instance where you bring a chip card from the United States to a different country and it won't work in that country, but any chip card that's presented to you in the United States, wherever it's from, that will work.

Another question that came in with respect to moving to chip readers is how much does a reader cost? And I don't know, we went through this, I think, is when we were disconnected. Again, the whole purpose of this webinar is not to endorse any particular product, but to give you a sense of what's out there. So as this liability shift is happening, you will see a proliferation of readers and terminals that can accept EMV cards. Square is an example of a company that has chip record that we've developed chip readers and you can obviously go to our website to see that. But there are also other companies out there who are doing similar. The price of these range from free to a cost as well. And so depending on what your needs are as business owners, you can look around and see what works best for you as a solution. Another question that came out was with respect to Apple Pay, and that leads to the next slide, Tony, which is some alternative payment types that are coming onto the market now, advocating an example of one. So we're here talking about EMV and talking about the transition to.

EMV and.

To new forms of payment. But EMV isn't the end all in B. There are other forms of payment methods that are coming out that will vary with respect to speed and security as well. And as technology evolves, customers are going to come to you, come to your counters and they're going to present different forms of payment, whether it's an EMD card, whether it's Apple Pay, Samsung Pay, Android Pay. And what we're seeing right now is, is the development of contactless payment. Apple Pay is an example of it. Contactless payment is something very different in that it relies on a different form of technology. And Tony, if you could move to the next slide, we'll go into this in a little bit more depth. So contactless relies on something called nfc, which stands for near field communication Communications. Contactless payments are kind of nifty and cool in that they have advantages with respect to speed, convenience and security. And so here's a little bit more on that. So first, contactless payments are much faster than EMV or even mag stripe swiping.

As Owen said, it can take as.

Long as 10 seconds to have an EMV payment.

Where a contactless payment can be instantaneous.

It'S just a touch.

And so that can be something that's.

Very exciting, particularly for businesses that value line speed. Second, contactless payments could be more convenient for customers, especially in the world that we're living in today, where more and more buyers are leaving their wallets at.

Home and are relying on their phone or their watch or some device to make a payment. Third, and very importantly, contactless payments are very secure.

In fact, they're probably the most secure. And the reason why is contactless payments.

Use tokenization to toggle cardholder information as well as biometrics like fingerprints to verify a customer's identity. So there's a speed, convenience and security.

Dimension to contactless payments, which could make it a form of payment that you'll see more and more. We don't see it as much in the US as we do in other markets, but now with the development of Apple Pay and coming soon, Samsung Pay and Android Pay, you know, we should see more and more adoption of contactless payments.

So just to put this in differing terms, we're really excited about EMV and nfc. Nfc, contactless payments. Apple Pay is one example of contactless nfc, and those both sit under the umbrella of what we would call authenticated payments, which basically means these sorts of payments are super secure because it's really hard to counterfeit them and it's really, really hard to. And it's really expensive to do so as well. So the tokenization that Demetrius is talking about basically means that the account number tied to your credit card is not being statically transmitted at the time of transaction. So the reason that it's easy, relatively easy, to counterfeit a Mag stripe only card or to counterfeit the magnetic stripe on the back of any card is because the data is static. It's always just your account number. Every single time that it's swiped with an EMV or an NSC transaction, that number is scrambled into some random string of numbers and letters and then it's matched back to your account number and therefore to you and your identity on the back end. So they're both really secure in that way. But then NFC has two additional benefits that a lot of our buyers and sellers are excited about. The first one is speed. So you get all of the security benefits of tokenization, but you don't have to wait 5, 7, 10 seconds for the transaction as you might have to with emv, because NFC transactions are instantaneous. In addition, for example, on Apple Pay, the Touch ID or the biometric verification is huge because even though both NFC and EMV protect against counterfeit fraud, they protect against lost stolen fraud in a different way. I could still steal Demetrius EMV card and go and use it at the Walgreens down the street. Unfortunately, I could not steal his iPhone and go and use it to make an Apple Pay transaction because I don't have his thumbprint and therefore it can't be verified in that way. So there's an even additional security benefit for some of these implementations of NFC or contact List. That's really exciting.

And just moving to the next slide, this will put what Owen said in context. We wanted to just give you all a sense of the various payment types and what that means from the perspective of speed and security. So you'll see here we tried to develop a chart that shows how many hamburgers you could sell in the same amount of time using different payment methods. And you'll see that the slowest is chip or EMV cards. It's much more secure than Mag Stripe, but the trade off is it's a little bit more slow because the card and the reader talk to each other to authenticate the transaction. The next in terms of speed is cash. You're all familiar with the benefits and the downsides of cash. It's more fast than probably a chip card is marginally, but it has the attenuated downside with respect to fraud and et cetera. The next in terms of speed are max drive cards. They're faster, but as we've discussed today, max drive cards have the most potential to be subjected to fraud than anything else. And then lastly, our contactless transactions, which as Owen described in depth, have the benefits of speed, added security and potentially additional connection convenience for customers. So let's just go to the next slide and then we'll answer. There's just been a ton of questions which thank you for asking them and we'll do our best to answer them before we open it up. The key takeaways I think just to think about today are there is a switch happening right now from magnetic stripe cards to EMV cards. And as businesses, you will need to be prepared to accept the cards that your customers are going to be presenting. The second big takeaway is that as we discussed on October 1, there was a liability shift for instances when your customer comes and presents a chip card to you, but you don't have the ability to read it because you still have a magstrate only reader. Third, alternative forms of payments like contactless are coming in addition to emv. And you know, as merchants you will want to be prepared to be able to accept whatever your customer is coming to the counter with. And last and importantly, I mean, this sounds trite, but Small Business Administration and Square are actually here to help and provide you as much information as we can with respect to this transition. So you're prepared Whether it's tomorrow, October 1st or January 1st of next year, you're ready to compete on a level playing field with every other business that's going to be making this transition as well. We have our landing pages, so if you want more information you can go to squareup.com, which has. We have a ton of information on EMV on alternative payments on our website. And the SBA likewise has a landing page that gives you more information on emv. So let's. In the time we have remaining, a whole slew of great questions have come in which we'll attempt to answer right now. And as soon as we're done with that, we'll open it up to additional questions that you all have that you may not have sent in, but you want to ask orally. So question one is, will customers need to sign or enter a pin? And what we're doing in some markets like Europe, as Owen said, the chip transactions are associated with the pin. We're not doing that in the US at this point. Right now, when you have a chip transaction, the customer will sign, just as customers are doing in the United States today with respect to mag stripe transactions. So second question is, how does all of this apply to mobile payments? If you're a mobile seller, what do you need to do with respect to card readers, et cetera? And let me turn it over to Owen.

Sure. So the vast majority of sellers in the United States are using that do accept credit cards, are using stationary point of sale, that generally Xerophone or Ingenico terminal that's hooked up to your point of sale, and upgrading those to accept EMV cards and also to accepting NFC such as Apple Pay, can cost hundreds, sometimes thousands of dollars. But that is not to say that accepting EMV is limited to terminals like this. We've been working at Square. We worked on our EMV reader for years, honestly for three years, trying to understand how could we take this big bulky terminal and fit it into a small little square that would work in a mobile setting. So we do have mobile EMV readers that are available. You can check them out at your website and. And also a host of other companies that are doing similar to what we're doing at Square also have mobile readers. So when you go to Europe, if you're at a craft fair or you're at a food truck, for instance, there are other providers, companies like iBettle, PayPal in some markets, and they also have mobile credit card readers. So it's really important to us at Square to make sure that every type of seller, whether it's the really, really small seller who is selling at a farmer's market a couple times a month, whether it's a mobile seller, a brick and mortar seller, any type of seller, is afforded access to the same sort of technology that big businesses and big box retailers have access to. So that's our mission and we're kind of dedicated to making sure that that continues for every type of entertainment technology. The next question that is a really, really good question is, is there going to be a date where basically all magnetic stripe cards are gone? Demetrius and I have done a ton of research on this and it's really helpful because you can look at other markets as kind of exemplars of what we should expect in the United States. And when we look at countries like Canada, Australia, the uk, Brazil, what we see is that changing payments behavior takes time. It doesn't happen overnight. And so generally there's about a three to four year migration period before we reach what we would term ubiquity, which means about 90% of transactions are chip cards happening at chip terminals. Now, there's a couple nuances to point out. One, mag stripes probably won't disappear. Even in a market like France, where EMV has been the standard since the early 90s, all chip cards still have magnetic stripes on the back. And one reason that that's the case is because if your chip is damaged hard and you try to read the chip times and it keeps on failing, then you can fall back to mag stripe. That's what some in the industry would term technical fallback. So we do expect that something like in three to four years, the vast majority of transactions will be chip transactions transactions, though there will still be in a very small number of cases, the opportunity to fall back to magnetic stripe, to the magnetic stripe on the back of cards. But the other nuance to point out is that we're going through the EMBM transition in the United States at a different time than many of these other markets did. Namely, as we were discussing before, contactless payments are on the rise. So the advent of the things like Apple pay, Android pay, Samsung pay, et cetera, we're really just at the beginning and so we don't exactly know how this is going to play out. We could be in a world that's very similar to what we've seen in other markets where in three to four years pretty much all transactions are chip card transactions. That said, we could also be in a world where the vast majority of Americans are not thrilled about spending a couple extra seconds at the point of sale when they check out. And the move to EMV actually incentivizes increased adoption of NFC contactless payments over time. So it's really exciting. We're at a turning point for payments in the United States and we don't know exactly what's going to happen. And that's why we're dedicated to just making sure all of our merchants have the option to accept whatever form of payment comes across the table. Just looking at the other.

So the next question was, is there a difference between debit and credit as it applies to emv? And the answer to that is no. An EMV card, there will be debit EMV cards and there will also be credit EMV cards. That is right. Next question, if a chip doesn't work, can I key in and will the bank take the liability? And the answer to that is if you go back to the slide, Tony, you don't need to. But if you're thinking about the slide that had that, all the different scenarios, if you key in the transaction and there's fraud, the bank has the liability, not you. The only time you as a merchant will have reliability post October 1st is when the customer comes in with a chip card and you can't read it because you only have a magnetic stripe terminal. Next question is whether or not NFC cards will work on non NFC readers.

The answer to that is no. So NFC readers, nfc. So there are a few different implementations of nfc. So before I just say no, let me make sure I'm explaining this in an adequate way. So for instance, Apple pay, Android pay, things like that on your mobile device, that's an instance of nfc and you will not be able to use those sorts of payment devices at a non NFC.

Reader.

That said, in the United States There are about 1.2 billion payment cards in circulation and about 50 or 100 million of them are also enabled with an NFC chip in the card. So you might have one of these credit cards in your wallet. It has what looks like a sideways WI FI symbol somewhere on the front or back of the card. The vast majority of these cards also have magnetic stripes and the vast majority also have EMV chips in them. And so to the extent that you have one of these cards, you can basically use that card at any terminal. If it's a magstripe only terminal, you can swipe it. If it's an EMV and mag stripe terminal, you can insert and dip it. And if it's an NFC terminal, you can can tap it. So if you have one of these cards that has all three, then you can use it at basically any terminal. So one question we got was with emv, will the banks and the processors charge more to either merchants or to cardholders? Largely, the answer is no. Processing fees should not increase. In fact, costs are being driven down by emergency. Because instances of fraud are decreasing as we increasingly move to emv. There may be some cost on merchants to upgrade their terminals to EMV NFC terminals, which can cost again, anywhere from free, depending on who your provider is, to several hundred at a time, a couple thousand dollars. And for cardholders, it actually does cost issuing banks much more money to produce a chip card relative to a mag stripe card, something like 20 or 30 cents instead of 5 cents. But this cost is not being passed on to cardholders by any means. So really the only big cost on the system from a buyer or seller perspective is upgrading that terminal.

So the next question we got was from Angie, who asked, if a merchant already has a magstripe reader, will that merchant need to buy a new reader and are they two separate readers or are they two in one?

So the vast majority will be two in one. There probably are certain instances of mag stripe only readers that can work in conjunction with EMV only readers. But more and more what you'll be seeing is merchants upgrading to a combination EMV and magstripe reader. And what we're also seeing in the market, which is very exciting, is that for merchants who are deciding to upgrade their terminal from a mag stripe only terminal to accept new payment, increasingly we're seeing businesses make the decision to upgrade to not only in magstripe and EMV terminal, but a mag stripe, EMV and NFC terminal so that really these sellers can accept whatever form of payment comes across the table and they're totally future proofed. As we said, in two years, if the primary way people are paying in the United States is EMV or nfc, this business will be totally covered.

I think we've covered most of the questions that have been sent in. So if we can, Tony, and open it up to live Q and A. I know we're at time, but given that this is such an important subject, we'd love to keep the questions coming in. So we're at your disposal as long as you all have questions. So Tony, if you want to open it up to live Q and A, we'd be happy to take questions.

And guys, it looks like we do have a couple folks queuing up. We're actually going to go down to the line of Jamie Shepherd.

Can we get this PowerPoint sent to us?

Yes, I think it will be made available afterwards.

Wonderful, thanks.

Oh, no worries.

Thank you very much.

And again, for more information, be sure to go on to the SBA EMV landing page as well as Square's website, which will provide a Lot of the same information that we talked about today. And that fun video at the beginning, you'll be able to find that on the Square website as well if you want to watch it again.

And guys, so it looks like we actually have a couple more live callers in the queue. We're going now to Sue's line.

Hi, this is sue, and I was wondering about the nfc. First you mentioned people would be using their phones for transactions, but then you also referred to the NFC chip. So can people be doing an NFC transaction either with a phone or something that looks like a credit card?

Great question, great question. Yeah, I'm sorry if I wasn't clear on that. So there are a few different implementations of nfc. So just to be clear, also, I know the terminology is getting crazy and there's always three letter acronyms. NFC stands for near field communication. It's basically synonymous with what people call contactless. So you'll hear those two words used interchangeably in the same way that EMV and chip cards or chip technology are used interchangeably. And you are totally right. You can basically put an NFC chip, a near field communication chip, inside of a device. So say your iPhone or your Android phone, or also you can put it inside of a credit card. So in the United States, there are really very few credit cards comparatively that have NFC chips in them. It's more common in other markets like Australia and the us uk, where there is quite a number of cards that do have NFC chips in them. But increasingly we are seeing really rapid growth in the number of smartphones that consumers are getting that also have an NFC chip in the phone. And you can make use of that NFC chip and use it to pay for things with applications and software such as Apple Pay, Samsung Pay, Android Pay, even things like Google Wallet currently. So our hypothesis and our estimates show that increasingly NFT transactions will mostly be taking place via a mobile device. And that's because it's way more convenient. So we feel, and we've heard when we talk to buyers and sellers in the United States, getting to that point where you can leave your wallet or leave your purse at home is really exciting. And so we are moving toward a world where people can pay for things with their cell phone or increasingly with the Apple Watch and the other wearables, where people can pay for things with other technological devices like an Apple Watch. That said, if you have an NFC reader, you may very well encounter a few customers coming in that have a credit card that have an NFC chip. But basically all those transactions look the same in that whatever card or device has the NFC chip in it is simply tasked to the reader and the transaction goes through.

Okay, thank you.

Thanks, Sue.

All right, guys, it looks like we do have a few more callers in the queue. We're actually going out to the line of dltarna. Good day, folks. Great seminar. Wonderful information. I greatly appreciate it. If, as a merchant, I recognize that a cardholder has a chip embedded EMD card and I do not have the reader, can I deny that individual service with that particular card? As I don't want to take the risk as of October and I don't have a new reader. Is that illegal to do? Is there any, you know, work security about that?

Not illegal. I mean, as a merchant, you know, you want to put yourself in a position to accept, you know, whatever payment your customer is presenting. And, you know, if you're unable to take a card because you don't have the capability to do so, you can. There's nothing that's stopping you from not doing so. It's just a question of whether or not you would want to turn your customer away. And that's why I think a lot of merchants. Right. So there's nothing illegal. You're not committing any illegal act by turning them away. But that's why I think a lot of merchants are going to start now looking to have ENV readers or terminals.

So that they won't be in that.

Position after October 1st. I think it's important to mention that there are many affordable ways to be able to accept EMV transactions. As Owen said, you can get an EMV reader anything from free to a couple thousand dollars to depending on your needs. So, you know, at Square in particular, we're trying to develop products that are affordable so that merchants don't ever have to turn a customer away. And I know other companies are doing likewise.

Thank you.

Thanks.

All right, guys, it looks like we do have one final caller in our queue, and we're going to Katie's line.

Hello.

Hi, Katie.

Hi. Hi. You just answered my question regarding. About the, you know, the old reader and the EMV readers, because obviously we are serving small businesses that using that and they're concerned about receiving or getting switched out to the new reader to accept all the cards or the chip embedded card. But you just answer my questions regarding, about, you know, refuse their service, I mean, or refuse their cards or what can they do if they don't have that card reader yet.

Great.

So thank you very much for that.

No worries. And I would just reiterate. So let's say that for whatever reason, whether it's call, whether it's something else going on, a merchant still only has a mag stripe only reader and a buyer presents with a chip card, it is still totally fine in terms of it is totally functional that you can swipe that card. The only thing to worry about is might this be an instance of counterfeit fraud?

Susan?

Okay, yeah. So I've talked to, for instance, in my hometown, there's a used bookstore that does a couple transactions a day and probably 95% of their customers they know and they're friends with. And this seller was telling me, hey, Owen, I might switch to EMV soon. But to be honest, I'm really not worried at all about counterfeit fraud. I've never experienced an instance of counterfeit fraud before. And that seller is saying, hey, I'm comfortable continuing to swipe cards for the next several months. And while I myself am always better safe than sorry, I think everyone should upgrade to EMV terminals over time. I understand that perspective. And so it's really on the onus is on the merchant to decide whether you want to switch, wipe the card and accept the transaction, or if you really don't feel comfortable and you really are nervous, it's going to be an instance of fraud that you might be liable for.

Thank you, Owen. I mean, that answered my questions.

Okay, great, Great.

Katie, thank you very much for a great presentation.

Thank you.

All right, guys. And at this time, I have not seen any more live questions come into our queue.

Thank you, everybody.

Thank you so much, everybody.