Starting on January 1, 2020, small businesses will also be exposed to liability in cases of fraud and misuse of credit cards used by consumers to pay for their purchases, if they swipe the card's magnetic band instead of asking the customer to put in the PIN code during the purchase. Putting in the PIN code is the advanced payment system being promoted by the Bank of Israel, which is already being used worldwide.
The Bank of Israel has not set a binding official deadline for all businesses to switch to the portable terminals for the new payment system, but it appears that large businesses (turnovers in excess of NIS 5 million a year) will be forbidden to debit credit cards using just the magnetic band, the current practice, by July 2020. By 2023, the entire economy, except for filling stations, will be required to switch to the new payment method.
The gradual transition began this year, but small businesses with turnovers of less than NIS 5 million were granted a postponement for deployment until January 2020.
EMV standard
EMV is an international security standard using smarter and safer technologies. The smart cards are identified on terminals in stores through a chip that already exists on most credit cards. In many countries, this service also exists. Consumers are asked to type in their secret code when making payments.
Use of the smart cards is likely to reduce the potential for credit card fraud, because the chip makes it possible to encrypt each deal separately, in contrast to the permanent encryption that takes place when billing is done using the magnetic band.
The Bank of Israel says that this measure will not only help reduce the risk of forgery and misuse of credit cards; it will also facilitate payments without credit cards, i.e. using digital wallets via mobile phones, with an emphasis on the entry of overseas players, such as Google Pay. The entry of international and Israel digital wallet players will be possible when EMV systems are introduced. Financially, the payment is not made through the credit card, as with the Colu app; it is made through the mobile phone, which is more convenient for consumers. Later, the banks' payment platforms, such as PayBox, Bit, and Pepper Pay will also be put on this platform. Mobile phones will be used for payments to businesses, as well as payment between people.
Israel is relatively late in implementing the standard. In many European countries, the standard has been in use for years. The reason is that credit card fraud was relatively infrequent in Israel. Since many countries have switched to the new standard, however, Israel is following suit with the prevalence of fraud, which is relatively rare in countries that already apply the stands, but which is increasing in Israel. This fraud involves misuse by copying the card particulars when the magnetic band is swiped and stealing the cards.
Who is liable?
Small businesses that do not install the smart payment system by January 2020 will exposed to penalties in the form of liability for misuse of a credit card. This means that if a consumer paid with a smart card at a business in which an EMV terminal was not installed, and which uses only magnetic band method, and if the consumer's credit card is misused, the party clearing the payment is responsible for reimbursing the customer for the amount billed, and is entitled transfer the liability to the business. This is the "liability transfer" mechanism.
"The purpose of this mechanism is to cause all businesses to prepare and install the necessary terminals and software in order to avoid liability, so that the entire market becomes an advanced payments market," the Bank of Israel says in explaining the measure. Businesses with turnovers greater than NIS 5 million have already been exposed to this mechanism this year.
The Bank of Israel predicts that within two or three years, the entire economy will switch to the advanced systems. It is believed that only 1% of businesses in Israel are using secret code method in sales, although an estimated 70% of them have new terminals.
How will payments be made?
For businesses, this means switching to new terminals adapted to the smart cards. The customer operates the terminal when making a purchase. Instead of giving the card to the cashier, the customer puts it into the terminal and types in the secret code according to the instructions appearing on the screen. The card is removed from the terminal after the deal is approved. In order to shorten the line at the cash register, it was decided that in purchases of up to NIS 200, billing will not require typing in the code when the purchase is made; the mobile terminal will scan the chip on the card.
Who has a smart card?
If there is a gold chip on the card, it is a smart card. If not, the next time that you renew your card, it will be replaced by a smart card, so that all credit cards will soon be smart cards. Until then, transactions can be conducted using the magnetic band; the new terminals also contain the technology for this.
It all begins with the secret code
In order to make it easier to remember the secret code, and in order to eliminate lines created by people forgetting their codes (this mostly involves credit cards that are not in frequent use for cash withdrawals), the Bank of Israel has begun a campaign to encourage consumers to choose a secret code for their credit cards.
All of the banks and credit card companies are obligated to allow their customers to select the secret codes for their credit cards (SSP Self-Selected Pin). Replacing the code on cards with chips can be done on the banks' ATMs. Replacing codes for bank credit cards can be done on the banks' own ATMs, each card at its bank.
Replacing the code on non-bank credit cards, for example consumers clubs credit cards, will be done according to the parent bank of the card issuer. For example, a code for an Isracard/American Express card can be replaced at a Bank Hapoalim ATM and at most ATMs of Bank Leumi, First International Bank of Israel, and Bank Massad. The code of a non-bank credit card of ICC-CAL/Diners Club can be replaced at ATMs of Israel Discount Bank and Mercantile Discount Bank, and the code of Max cards (formerly Leumi Card) can be replaced at ATMs of Bank Leumi.
How can you tell whether you have a bank credit card or a non-bank credit card? A bank credit card bears the bank's logo, while a non-bank credit card bears the logo of the credit card company or consumer club logo, with no bank logo.
Replacing the code is simple. After inserting the card into the machine and typing in the existing code, you can choose a new code that will be saved. Consumers holding a number of credit cards can choose the same code for all of them. There is no limit on the number of times that the code can be replaced, while there is a restriction on the code that can be selected: the code must have four digits, and "overly simple" codes, such as 1234 and the same digit four times, cannot be chosen. Consumers use the same codes for purchases in both Israel and overseas.
Payments by Internet and telephone
There is no change in this aspect. Payment is made by disclosing or typing in the credit card number and providing required additional means of identification (ID number, the three digits on the back of the credit card, the date on which the card expires, etc.). There is no need to type in or disclose the secret code.
Filling stations are exempt
Since converting the systems at filling stations requires complicated preparation, the billing method will be kept as it is now, at least for the foreseeable future.
Published by Globes, Israel business news - en.globes.co.il - on November 4, 2019
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