Non-Profits Should Be Aware of Issues With Chip-Enabled Credit Cards

John Stancil2

It is highly likely that you have recently received a new, updated credit card from at least one of your credit card vendors. If you did, it is almost certainly one of the new “chip-enabled cards.” You most likely are wondering “What is this all about?”

The United States is very late to the game in the chip card market. These have been in use in Europe for a number of years. It is all about security. After the cards were introduced in Europe, there was a sharp decline in credit card fraud. Without getting into too much technical detail, the old magnetic strip cards allowed the retailer to store card data in their systems, making them ripe for data theft. The chip cards, referred to as EMV (Europay, Mastercard, Visa) utilize a process referred to as tokenization to increase security. In lieu of recording the credit card number a one-time “token” number is substituted in the system for the actual card number, making it almost impossible to steal the actual card number.

The move to EMV cards should have a minimal effect on the average consumer. He or she will still take the card to the merchant, but the chip will be read, rather than the magnetic stripe. There are still some issues to overcome, such as the use of EMV cards in making online purchases and buying gasoline at the pump. Mobile payments are also an issue that is yet to be resolved.

You may note that if the merchant has a scanner that will read both the magnetic strip and the chip, the merchant usually expresses a preference for using the chip. There is a very good reason for this. As of October 1, 2015, the liability for fraudulent charges falls on the merchant rather than the card company unless the chip technology is utilized. To avoid liability, the merchant processes its charges via the chip technology.

This raises issues for churches and non-profit organizations that accept credit cards, especially since they frequently utilize mobile pay methods and may not yet have the appropriate chip technology. These organizations (in addition to anyone accepting credit cards) need to be aware of the liability shift and the potential loss involved should something go awry.

As merchants move to the technology, it can be expected that those still using magnetic stripe readers will be targets for increased fraud, as fewer merchants will be easy pickings. In addition, any organization accepting credit cards should be on the lookout for other types of scams. Those who would act in a fraudulent manner will not give up just because the technology makes it more difficult. They will exploit the new weak link in the system.

Dr. John Stancil (My Bald CPA) is Professor Emeritus of Accounting and Tax at Florida Southern College in Lakeland, FL. He is a CPA, CMA, and CFM and passed all exams on the first attempt. He holds a DBA from the University of Memphis and the MBA from the University of Georgia. He has maintained a CPA practice since 1979 with an emphasis in taxation. His areas of expertise include church and clergy tax issues and the foreign earned income credit. He prepares all types of returns, individual and business.

Dr. Stancil has written for the Polk County Business Journal and has presented a number of papers at academic conferences. He wrote the Instructor’s Manual for the 13th edition of Horngren’s Cost Accounting. He is published in the Global Sustainability as a Business Imperative, Green Issues and Debates, The Encyclopedia of Business in Today’s World, The Palmetto Business Review, The CPA Journal, and in the NATP TaxPro Journal. His paper, “Building Sustainability into the Tax Code” was recognized as the outstanding accounting paper at the annual meeting of the South East InfORMS. He wrote a book entitled “Tax Issues Faced by U. S. Missionary Personnel Abroad ” that will soon be published.

He has recently launched a new endeavor, Church Tax Solutions, which presents online, on demand seminars on various church and clergy tax issues.

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  1. James Kronenberg says:

    John, Great topic & I commend you for insightful commentary as well as timely advice ! Wondering if “tokenization” is limited to just VISA & MC (i.e. what about Discover, AmExp, Diners Club, etc.) ? Also, can merchants clearly display that their retailing collection policy involves customers must pay specified fee for each fraudulent transaction when retailer POS does not adopt new “Chip” technology ? Something similar to fees for NSF checks ? Thanks for any feedback you have !

    • John Stancil says:

      Tokenization is a part of the process. Any chip-enabled card is capable of tokenization. As far as the fee is concerned, I can’t answer that as it is a legal issue between the parties. However, who would you collect it from? You don’t know the identity of the person using the card fraudulently and have no way to contact them. You certainly wouldn’t charge the legitimate cardholder for a fraudulent charge on his/her account.

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