Five months into a major transition for the credit card payment industry, banks and credit card companies are playing catch-up to get new, more-secure credit and debit cards embedded with computer chips into the wallets of their customers.
But as more consumers get the cards, many merchants still lack the technology to take advantage of the new cards’ security features. And by lagging, they’re putting themselves at risk of losses for fraudulent transactions made with counterfeit cards.
A canvass of about 40 merchants and restaurants at northwest Fresno’s popular Fig Garden Village shopping center last week revealed that half have not yet installed new card readers capable of processing transactions with the new “smart-card” technology. Nearly a dozen others have updated readers installed – but not activated – at their checkout counters. Of the businesses visited by The Bee, only nine had their chip-card readers fully active to process transactions.
For years, credit cards have embedded customer data on that black magnetic stripe on the back of the card – the part that gets swiped through card-reading machines at merchants’ cash registers. The problem with the decades-old technology, however, is that the magnetic stripe can be easily skimmed or copied, enabling fraudsters to make a counterfeit card.
The new “smart cards” use what is called EMV technology (named for credit card companies Europay, MasterCard and Visa), and come embedded with a prominent microprocessor chip in addition to the magnetic stripe on the back. The chip, like the mag stripe, stores the customer’s payment information. But the chip generates a special one-time-only electronic code for each card transaction – a feature that makes it extremely difficult to counterfeit the card.
The new card readers still can accept older mag-stripe cards, but they also know when a card has a chip and requires the customer to insert the card into a special chip-reading slot for the transaction.
Last Oct. 1 was the deadline set by major credit card companies for a shift in financial liability. If a merchant had installed and activated a new card reader capable of processing a chip-card transaction, they could not be held liable for losses on any sales made on a counterfeited chip card. But if they still were relying on a mag-stripe reader, the merchant – and not the card-issuing bank or credit union – bears the loss.
“Issuance and adoption of EMV chip technology in the U.S. is really on-pace with what we expected to see so far,” said Cathy Medich, the EMV Migration Forum’s associate director. “The U.S. has a more complex payments environment than any other country that has migrated, so while there’s still work to do, there has been remarkable progress in the last two years.”
At the family-owned Top Drawer card shop and boutique tucked into an out-of-the-way corner at Fig Garden Village, Jane Saunders, whose daughter owns the business, said she is happy her store has an active chip-card reader as an additional layer of card security for both the store and its customers.
“It’s protecting us and protecting our customers. We’re glad to have it,” Saunders said. “It’s just part of the cost of doing business.”
Jodi Hill, manager of independent shoe store Heart and Sole, agreed. “A lot of our customers are asking if we take the chip cards,” she said. “We’re seeing more and more customers using the chip cards.”
Some of the nation’s biggest retailers, including Target and Walmart, led the way in installing and activating chip-card readers in their stores more than a year ago. Yet at Fig Garden Village and elsewhere, many of the businesses that have not made the transition are national names – stores like Pottery Barn, Bath & Body Works, Williams Sonoma, lululemon and Chipotle.
Smart cards have been in use for years in other parts of the world, but the transition from mag-stripe technology to chip cards in the U.S. is an enormous – and expensive – undertaking. The Congressional Research Service report last fall estimated that about 1.2 billion credit and debit cards are in circulation nationwide.
A year ago, the EMV Migration Forum predicted that about half of the cards in the U.S., about 600 million, would be replaced by chip cards by the end of 2015. That estimate has been revised downward.
“We estimate that over 400 million chip cards have been issued in the U.S. as of the end of 2015, with most large and midsize financial institutions completing their issuance during the first half of 2016,” Medich said last week. Many banks and financial institutions are replacing customers’ old cards as they expire; others are making chip cards available earlier if their customers request them.
Cost is one of the factors cited by the Congressional Research Service in the slow adoption of EMV technology in the U.S.
The cards aren’t cheap. Production costs for a traditional mag-stripe card are about 25 to 50 cents each, according to the CRS report, compared to between $1 and $4 per card to manufacture chip cards.
And the card readers aren’t cheap, either – between $100 and $600 apiece, compared to $50 or $100 for mag-stripe-only readers, the CRS report stated. Across the U.S., the transition ultimately will include about 12 million card-reading terminals, according to the EMV Migration Forum.
“Visa has reported that over 750,000 merchant locations were enabled to accept EMV chip cards as of January 2016, including many smaller merchants,” Medich said. Many retail locations have multiple terminals, particularly large department stores and big-box retailers such as Target and Walmart.
Clerks and cashiers at some of Fig Garden Village’s national chains including lululemon, Eddie Bauer, Pottery Barn and nutrition/supplements store GNC said they’ve not been told by their companies when their card-reading machines would be upgraded to accept EMV chip cards – even the ones that have the terminals in place but not yet activated.
Several of the local independent merchants said they were holding off either because of the cost of the machines or because their credit-card processing services were not yet ready to handle chip-card transactions.
Retailers and restaurants aren’t the only ones facing a conversion to the new technology. Another key deadline is looming in October 2017, when gasoline stations with pay-at-the-pump terminals must have chip-card technology in place or face the same shift in liability for counterfeit card transactions.