A quiet deadline is looming for businesses that accept credit and debit cards.

After Oct. 1, most merchants that haven’t switched to a new payment standard that encrypts certain identifying account information could be liable for losses if they accept counterfeit credit cards.

The new standard relies on the EMV chip—named for Europay, MasterCard, and Visa—that generates a unique code for each sales transaction.

Ian Gibson, Spokane-based regional director for CentralPayment Washington, says he’s heard recently that nearly 60 percent of U.S. small businesses won’t be in compliance by Oct. 1.

San Rafael, Calif.-based CentralPayment is a service that processes transactions between businesses that accept credit and debit payments and financial institutions that back them.

Gibson says he hasn’t seen compliance estimates specific to the Spokane area, although awareness has heightened in the region in recent months.

“Spokane is changing week by week. I get phone calls daily,” Gibson says. “Business owners are seeing the chip and investigating what it is.”

One of the challenges of promoting the EMV system is in cultivating trust with merchants, especially those that still have multiyear leases with noncompliant terminals, Gibson says.

“The last thing they need is another issue with a piece of technology in their business,” he says.

Gibson says the EMV system has been well tested globally for more than five years.

The U.S. is the last major market to adopt the EMV standard, which has helped reduce counterfeit credit card fraud by 69 percent in the United Kingdom and by 35 percent in Canada, he says.

Unfortunately, hundreds of millions of dollars in fraud have occurred in the U.S. during the time that the EMV standard was developed and adopted overseas, Gibson asserts.

The Wall Street Journal recently reported that fraud involving counterfeit credit cards is expected to mount up to a record $3.6 billion this year, and just two years ago, about 10 percent of U.S. small businesses were victim of payment fraud, much of which the EMV chip is designed to prevent.

Gibson asserts that, had such a system been in place in the U.S., it likely would have negated large data security breaches that occurred at Target Brands Inc. and closer to home at Spokane-based grocery wholesaler URM Stores Inc.

The Target breach resulted in the theft of personal information from up to 70 million credit card and debit card users in December 2013.

A Spokane Target manager declines to comment about the new system, but the Minneapolis-based retailer says on its website that it had activated EMV terminals at all of its stores by late August, and that it will replace all of its own Redcard credit and debit cards with chip-embedded cards by next spring.

The card terminals at Target also support personal identification numbers and signature verification, the company says.

URM’s payment processing system also was hacked in late 2013, causing some of its member stores to temporarily halt accepting credit and debit transactions.

Ed Goebel, chief information officer with URM’s member supermarket company Yoke’s Fresh Markets, says Yokes has installed 170 EMV-capable terminals throughout the Spokane Valley-based chain, although the system wasn’t online as of this week.

Goebel says the new terminals should be about as easy for customers to use as the terminals they will replace.

“The only difference is the consumer needs to get used to leaving the card in place during the transaction,” he says. “I don’t think the transaction takes any longer, though.”

The EMV chip looks like a small, flat circuit board, similar in size and appearance to the chip on a cell phone SIM card. It’s usually imbedded in the front of the card, toward the left edge, just above the card number.

Instead of swiping the card through a magnetic reader, a cardholder inserts the chip portion of the chip-embedded card into the EMV-compliant terminal and leaves it there until the transaction is authorized and the system instructs the cardholder to remove it, Gibson says.

For the time being, EMV cards also have the conventional magnetic strip on the back side above the signature box, so they can be used at places that haven’t changed over yet to the EMV terminals, he says.

Some financial institutions in the Spokane area say they are busy converting to the EMV chip-embedded cards.

Spokane Teachers Credit Union, for example, had begun issuing EMV chip-equipped credit cards to its international travelers a year ago. 

The credit union plans to issue EMV-compliant cards to the rest of its standard STCU credit card holders by early next year as it switches its credit card affiliation, says STCU spokesman Dan Hansen.

“We’re working on a conversion to MasterCard that will be completed by the first quarter of 2016,” Hansen says. “It’s all in the name of more secure transactions. We’re looking for transactions being encrypted. That’s what happens with the chip.”

STCU has about 70,000 credit card holders, he says. Every credit card holder also will be able to set up a personal identification number.

“In countries where EMV cards are common, it’s also increasingly common to also provide a PIN,” Hansen says, adding that the PIN requirement might eventually become standard in the U.S.

STCU has 143,000 members, most of whom have debit cards, which STCU also plans to replace with chip-embedded cards.

“That’s going to happen in the first half of next year,” Hansen says.

STCU cards also will have magnetic strips that will enable members to use their credit cards at businesses that aren’t equipped with EMV-compliant terminals.

Jan Teague, president and CEO of Olympia-based Washington Retail Association, says most members of the statewide trade group support the conversion to the EMV standard.

“We’ve been promoting it,” Teague says. “Retailers want better technology to make sure nobody’s information is taken.”

She says some retailers, however, are moving cautiously as they work with credit card companies and vendors to buy or lease new equipment to implement the system.

“Third-party vendors sell the machines,” Teague says. “I think the costs are all over the place.”

The Wall Street Journal recently reported the cost for each EMV compliant terminal ranges from $100 to $600, although some processing services offer at least one free terminal.

Aside from potential equipment costs, the retailer’s cost per transaction isn’t increasing, Teague says.

Teague says she hasn’t heard any consumer complaints about the EMV system.

“It’s a consumer-driven program,” she says. “I think it’s seamless for consumers.”