Will this chip card cause confusion at store checkout lines?

The simple act of swiping your credit or debit card to pay at stores is about to get more complicated — or annoying if you’re the impatient type.

You can point the finger at something called the counterfeit card liability shift deadline. The deadline only applies to banks and merchants, but, because it kicks in on Oct. 1, it’s fueling a nationwide move to payment technology meant to improve security and reduce fraud.

The technology takes the form of chip cards, also known as EMV cards or smart cards, which contain embedded microprocessors that, unlike the more familiar magnetic stripe cards, transmit unique data with every transaction.

But the added security comes with a cost.

For shoppers, the price is a foreign checkout process that takes longer. That’s because chip cards need to be “dipped,” or inserted, into terminals, as opposed to swiped. The smart cards also must be held in place for several seconds, and they take longer to process — five to 10 seconds longer — than their dumber predecessors. For merchants, the expense is more literal because they must install new payment terminals.

Even with October around the corner, many retailers aren’t ready. Cue the confusion.

“Issuers have largely gotten the cards into consumers hands, but merchants have not activated terminals or completed migration for chip,” said Randy Vanderhoof, executive director of the Smart Card Alliance, an industry association that aims to stimulate adoption of chip cards.

“As we get closer to the (liability shift) deadline, there’s going to be a significant ramp up of merchants that are going to enable chip … and a significant flood of chip-on-chip transactions. If there is any unforeseen problems with cards, merchant terminals or consumers (in understanding how chip cards work), they will be exaggerated by the sheer volume of transactions that will be hitting the market at the same time,” he explained.

Ultimately, the switch to chip is designed to eradicate a very specific type of fraud known as card-present counterfeit card fraud, where criminals use stolen card data to create duplicate cards that can be swiped like the real things. When it comes to chip cards, the U.S. lags the rest of world, particularly Europe where chip cards are the norm. In fact, the EMV standard, named after Europay, MasterCard and Visa, was jointly created by the card networks back in the mid ‘90s.

As the last major country to embrace chip cards, the U.S. absorbs a bulk of the fraud around counterfeit cards. In 2012, global payment card fraud totaled $11.3 billion with the U.S. accounting for more than 47 percent of fraud, or $5.3 billion, according to a 2013 Nilson Report.

It wasn’t until the high-profile payment card breaches at Target in late 2013 and Home Depot in late 2014, that big banks and large retailers were spurred to adopt EMV more aggressively in the U.S.

The path to eliminate counterfeit card fraud in the U.S., however, is one that will be marked by complications. Small businesses, in particular, will be confronted with a major headache come fall.

The liability shift puts the burden on merchants to accept chip cards — or risk footing the bill for fraudulent charges. Beginning Oct. 1, the liability for counterfeit cards used in-store will shift from the card issuers (banks), who cover those costs now, to the merchants if they’re the weakest link in the payment chain.

Mega-merchants like Target and Walmart are ready for the liability shift. Small businesses not so much.

“We have a tremendous number of small merchants that are not even aware that this change is coming,” said Doug Johnson, senior vice president of payments and cyber security policy at the American Bankers Association.

Ann Kinner, owner of Seabreeze Books and Charts in Point Loma, is aware. She also chairs the California leadership council for the National Federation of Independent Businesses (NFIB).

“I happen to be in a position to get a lot of information,” she said. “Unfortunately, for a lot of small businesses, they’re going to be rudely surprised.”

Though informed, even Kinner is still unable to accept chip cards. She has an EMV-ready machine at Seabreeze Books and Charts, but she’s still waiting on the appropriate software required to begin processing the more secure cards. She doesn’t know when she will be able to accept chip cards.

Her situation won’t be atypical. Even proactive small businesses will find themselves reliant on the third-parties providing the hardware and software to enable EMV transactions.

“There are a lot more merchants out there that are in demand (of EMV) than there are people able to service them in a short time frame,” said Vanderhoof. “We have a bit of an excess of demand on the payment processing companies.”

What’s worse, small businesses, given their size, may not be at the top of the service list.

“A merchant may feel like they are trapped,” Vanderhoof said. “They may have an existing partner, have the hardware, but then are dependent on another company to provide the right software.”

In the interim, criminals will seek out smaller merchants.

Source: The San Diego Union Tribune