YOUR MONEY-Chip cards scarce in US, despite deadlines

30 Sep 2015 | Author: | No comments yet »

Card Liability Is Set to Shift.

Though the credit card industry’s self-imposed deadline is Thursday, more than six in 10 American card holders still don’t have chip-enabled credit cards in their wallets, and retailers are nowhere near ready, according to a new survey.Only a fraction of U.S. payment card issuers have sent chip-embedded cards to customers, and only a fraction of merchants have installed chip-enabled payment systems as a deadline looms tomorrow to shift liability for fraudulent transactions from credit card companies.Merchants face a Thursday deadline to transition credit-card readers from the familiar magnetic-stripe systems we all know to a more secure embedded chip system that requires customers to insert cards into a new device.

Starting Thursday, merchants will be held fully liable for any losses due to credit card fraud if they are not geared up for the new, more secure, chip cards. The EMV Migration Forum — EMV stands for Europay, MasterCard and Visa, the three companies that created the chip card standard — estimates 200 million-plus chip-enabled cards have been issued out of 1.2 billion cards in the marketplace. “There’s still a lot more cards to be updated to the chip technology for sure,” said Randy Vanderhoof, director of the forum, a multi-industry group. Merchants are scrambling to deal Thursday with the end of a longtime policy in which financial institutions absorbed the cost of certain fraudulent credit-and-debit card transactions.

The cashier would stare at their credit card, not quite sure what to do. “Some younger cashiers would say: ‘I don’t know what to do with a card that doesn’t have a chip on it,’” says Oliver Manahan, vice-president of emerging payments at MasterCard Worldwide. While businesses will still be able to use magnetic-stripe systems, they will be on the hook if fraudulent charges are made on a consumer’s chip-enabled card. And consumers will need to change their habit of swiping their credit cards to pay: Instead, they “dip” their new cards into terminals and leave them there until the transaction is complete.

For U.S. merchants, only about 40 percent of their payment terminals have been upgraded to accept the microchip-embedded cards, according to the National Retail Federation. The adoption of chip-enabled technology is a business decision rather than a mandate for card issuers and merchants, who must weigh the costs of issuing the new cards and installing the point-of-sale systems against the potential costs for fraud liability. For years, consumers in Canada and Europe have committed to muscle memory the rites of credit and debit card purchases – insert a payment card, enter a pin number and wait for the cryptic mechanics of digital verification to assure the cashier that you really are the card’s rightful owner. But as of tomorrow, if a chip-enabled card is used for an unauthorized in-store transaction, the merchant will bear the liability if it was unable to process it as a chip card transaction. Suneera Madhani, CEO of FattMerchant, which sells payment hardware and software, said her Orlando company took EMV into account as it rolled out products in March 2014.

That’s likely because the same survey found that nearly three in five business owners felt not complying would have little to no effect on their bottom line. V 1.98 % and MasterCard Inc., MA 0.46 % most card issuers starting Thursday are expected to immediately start passing certain fraudulent transaction costs onto retailers that don’t have the capability to process the chip-based cards, industry executives said. The move from the old cards with the magnetic stripe on the back to the new ones with an embedded computer chip is aimed at reducing fraud with counterfeit cards. The survey, conducted by Toronto-based point-of-sale company Lightspeed, also found that 39 percent either have no plans or are unsure about their plans to transition. And, even though card fraud constitutes more than a third of all card-related losses for the companies that issue payment cards, covering those losses is still largely manageable for the industry’s biggest players.

The new chip cards, which have been flooding consumer mailboxes for months, provide a unique code for each transaction, compared with static data that are contained on the traditional magnetic strip. While the chip itself won’t stop thieves from hacking a merchant’s payment system, any stolen card information will be virtually useless since the data change each time it is used. In recent years, a number of high-profile data breaches at companies such as Target have, sometimes overnight, resulted in a flood of fraudulent charges. “There’s nothing you can do right this moment to ratchet down fraud e-commerce without responding to every risky online transaction by rejecting it,” says David Robertson, publisher of the Nilson Report, which monitors the payments card industry. “But you do have the technology to guard against counterfeit card fraud.

In addition, urban and suburban card holders are also more likely to have gotten updated cards than rural residents. “It’s a big, long process,” said Matt Schulz, senior analyst at “This is the biggest challenge in decades in how credit cards are used in America.” If you are among the 60% who haven’t got a new card, Schulz said there are two things you can do: Call your bank and ask when it’s coming, or apply for a new card. The answer, it seems, is fear of overwhelming the average American consumer, who uses between four and five credit cards. “Unless everybody’s all in with the pin system at once, the issuer who goes to pin in advance risks their customers not using the card because they can’t remember their pin,” Mr. As such, getting all of them on board for chip-and-pin technology – which helps with stolen cards but is less useful in other areas, such as fraudulent online transactions – has been difficult. The purpose of such tokens is to limit and eventually end the use of “static” credit card numbers, such as the ones embossed on every card – which is commonly the weakest link in the security chain. N.J., company that processes debit-and credit-card transactions for merchants, estimates that about 150,000 of his 180,000 customers, aren’t ready to accept chip cards. “Small merchants are going to be shocked and I think they’re going to be mad as hell,” said Mark Horwedel, chief executive of the Merchant Advisory Group, an organization of retailers.

Counterfeit cards represented $3 billion of the estimated $3.8 billion in fraud losses attributed to brick-and-mortar store transactions last year, according to Aite Group, a Boston-based consulting firm. It says “most large retailers will have the new terminals running this fall.” Small and-midsize merchants may be particularly vulnerable because they have been slower to adopt the new technology.

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