New chip credit card may take years for full implementation
If you’re a credit or debit card holder, you may have recently received a new card from your bank that includes an embedded computer chip.
There also is a good possibility you haven’t received your new card.
And if you’re unaware of what these new cards are, don’t despair. A lot of Americans aren’t familiar with the new versions.
On Oct. 1, however, merchants were expected to meet a deadline to update their point-of-sale card readers to accept the new chip cards, which are designed to add a layer of protection from fraud.
Despite those preparations, the full shift from magnetic strip credit and debit cards to the chip version may take years to complete, say some experts.
While banks and credit card companies have been sending out millions of the new cards this year, it may be some time before they reach all of their customer base.
According to industry estimates, about half of the 12 million card readers at payment terminals in the United States will be converted to accept chip cards by the end of the year. However, there are about 1.2 billion debit and credit cards in circulation among 335 million people who live in the U.S. Eight major banks account for half of the U.S. card volume. They estimate about two-thirds of their cards will be reissued as chip cards by the end of the year.
Gaining momentum
The conversion from older magnetic strip cards to chip cards has gained steam this year as banks and credit card companies are pushing merchants to upgrade their payment terminals to enable them to read the chips on the cards and bring the United States in line with credit card security that’s been used in other parts of the world for some time.
While consumers will see no change in the liability they incur – U.S. banks and card providers will continue to protect them against fraud – there will be a change in liability between card issuers and merchants.
Under current credit card industry rules, banks are responsible for fraud losses when a counterfeit card is used and retailers are responsible when the person using the card is not the legitimate cardholder.
As of Oct. 1, banks are no longer honor their share of fraud costs if the card used is a chip card and the retailer does not have a chip card reader.
Big retailers like Walmart have been converting their payment terminals for some time to be ready for the new cards. But other merchants, especially those operating small businesses, have complained about the cost of conversion, which is around $2,000, and the fact that in most cases, the software installation probably requires the skill of a professional.
Albert Malie, owner of South Side Hair Designs in Washington, said he had his card reader updated in early spring to accept the chip cards.
Malie said he opted to lease the equipment for the next two years, rather than purchase it.
“By then, they’re (probably) obsolete,” he said, noting the pace at which technology changes.
Malie said a representative from PNC Bank installed the new software on his terminal.
“It took her about an hour,” he said. “It would have taken me two or three hours.”
Long conversion time
While he may be ahead of the curve by having the new reader well ahead of the deadline, Malie noted many of his customers are still handing him the older magnetic strip cards.
“It’s running about half and half,” he said of the types of cards he processes.
And despite the Oct. 1 deadline for merchants, experts predict it will take years for the conversion from magnetic strip cards to ones with embedded chips to occur across the retail industry.
In an interview two weeks ago with Computerworld magazine, Avivah Litan, an analyst at the Gartner Group who has been following the conversion, said, “Realistically, we should expect the adoption of chip cards in the U.S. to take a few years.”
An August survey of 5,027 Americans found 56 percent weren’t aware of what a chip card is. But many of those who are familiar with the new cards aren’t convinced they’ll do enough for security.
According to a survey released earlier this month by the National Retail Federation, the majority of U.S. consumers – 62 percent – believe new credit cards don’t go far enough to protect card data or prevent fraud.
“Consumers are worried that chip-and-signature cards really amount to chip-and-chance,” NRF Senior Vice President for Government Relations Mallory Duncan said in a news release. She said the card industry’s refusal to give consumers the full protection they want – chip cards combined with a personal identification number, or PIN – continues to be a big disappointment.
A recent survey conducted on the Observer-Reporter’s online site echoed the national surveys.
When answering the question, “Do you think the mandated use of security chips in credit cards will be enough to protect your credit card information and privacy?” 136, or 80 percent, of respondents said no, while 19, or 11 percent, said yes. The remaining 9 percent said they were unfamiliar with the security chip.
According to the NRF, many retailers believe the liability shift is unfair because the chip reduces banks’ exposure to fraud while it leaves retailers exposed to fraud.
The new cards, which banks have been rolling out over the past year, use EMV technology – short for Europay MasterCard Visa – to store data on an encrypted computer microchip. But unlike EMV cards used around the world for more than 20 years, which include a PIN, most cards being issued in the United States continue to use a signature to approve the transaction.
During the same period, retailers had to pay for new card readers, which average about $2,000 each when related software, equipment, installation and other costs are included, or an estimated $35 billion nationwide.
While most major retailers and many smaller merchants have installed the equipment, many have reported that activation has been held up by bottlenecks such as delays in having the systems certified by card companies. That put many retailers at risk for liabilities through no fault of their own.
“The chips partially address the issue of counterfeit cards, but do nothing about lost or stolen cards because thieves will still be able to sign any illegible scrawl to ‘prove’ that they are the cardholder,” Duncan said. “More importantly, sophisticated criminals can circumvent the chips, so a chip alone is not foolproof. A PIN is a secret password that makes the card useless to a criminal whether the card has a chip or not.”