Will Chip Cards Cause Consumer Confusion?

With the Oct. 1 EMV deadline fast approaching, the financial services industry claims that merchants won’t be ready.

September 22, 2015

SAN DIEGO, Calif. – The San Diego Union Tribune reports that many retailers “aren’t ready” for the October 1 EMV deadline, suggesting that consumer confusion is likely at the register.

“Issuers have largely gotten the cards into consumers hands, but merchants have not activated terminals or completed migration for chip,” Randy Vanderhoof, executive director of the Smart Card Alliance, told the news source.

“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 [are] 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.

Beginning October 1, 2015, U.S. retailers that have not installed EMV-capable payment terminals will be held liable for fraud resulting from transactions at their locations. While larger merchants such as Target and Walmart are prepared for the liability shift, many small businesses are not.

“I happen to be in a position to get a lot of information,” Ann Kinner, owner of Seabreeze Books and Charts in Point Loma, California, told the news source. Kinner also chairs the California Leadership Council at the National Federation of Independent Businesses (NFIB). “Unfortunately, for a lot of small businesses, they’re going to be rudely surprised.”

Kinner has an EMV-ready POS at her store but is unable to accept chip cards. She told the news source that she’s still waiting on the appropriate software required to begin processing EMV cards and does not know when that will finally happen. Like Kinner, small businesses are often reliant on third-party vendors to provide the necessary hardware and software to enable EMV transactions.

This lag, however, could put smaller retailers in the crosshairs of criminals.

“Everyone in the industry is aware ... that small businesses will be the last to upgrade their equipment,” Avivah Litan, a security analyst at Gartner, told the news source. “Everyone knows fraud will migrate to small businesses, because that’s the place where criminals will be able to use counterfeit cards.”

In any event, chip cards are coming to consumer wallets. According to the EMV Migration Forum, an estimated 600 million chip cards will be in the United States by the end this year. However, Visa said that as of July, less than 18% of its 720 million credit and debit cards have the embedded chip and are ready for the October EMV shift.

“The truth is that banks, credit unions and the card networks are nowhere close to replacing the more than 1.2 billion cards Americans carry in their wallets,” said Brian Dodge, executive vice president of the Retail Industry Leaders Association (RILA).

Shifting to the less-secure chip cards that do not require consumers to enter a PIN is expected to cost about $8 billion, according to a September Congressional Research Service report. Merchants will absorb about 75% of the costs.

According to Gray Taylor, executive director of Conexxus, the total cost to convenience store industry will be roughly $3.9 billion (previous estimates were $3.6 billion) when the dust settles—“but that number will increase as we pay a premium for tight implementation schedules.”

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