The new cards use a chip that issues a one-time code for each transaction, rather than a magnetic strip traditionally used to store information. The new cards were introduced in an effort to cut down on credit card fraud and protect consumers.
The deadline for retailers to begin accepting the new cards was October 1. After that date, merchants began to assume liability for fraud if they had not upgraded to the new technology. The exception to the deadline is self-serve gas pumps, which have to be compliant by 2017. The deadline currently does not affect card-not-present merchants.
Despite several warnings, many retailers have not made the switch, opening themselves up to millions of dollars in liability for credit card fraud. According to the Wall Street Journal, fraud cost an estimated $10 billion last year. It is estimated that up to 75 percent of merchants have not switched to terminals that accept chip cards.
Merchants can protect themselves from liability by purchasing insurance, but the best method is to avoid or reduce risk altogether by upgrading to new terminals that accept chip cards. Cyber liability insurance can protect a business from damages due to a variety of scenarios. It can cover breach response expenses, forensic and legal assistance, breach notification, 12 months’ free credit monitoring to notified individuals, loss control information services, identity theft for business owners, and fines related to regulations such as HIPAA and PCI. Policies may or may not cover fraud related to businesses not having readers that accept chip cards.