Thursday marks an important milestone for the shift to new, smarter credit and debit cards designed to better protect against fraud and bring American card users in line with much of the industrialized world.
That’s the day merchants could be liable for fraudulent credit card purchases — rather than the issuers — if they haven’t updated their technology.
Earlier this week, Judy Naver already used her debit card, equipped with a new security chip, at the Wal-Mart in Ankeny, Iowa. Instead of swiping the magnetic stripe, she inserted her card into a credit-card reader, signed for her purchases and within seconds was on her way.
“I wish all retailers were using the chip cards,” Naver said. “They say it’s more secure and offers more protection (for consumers).”
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But so far the technology’s acceptance has been sluggish.
Major retailers like Target, Walgreens and Costco have begun accepting microchip-enabled cards, also known as EMV cards — short for Europay, MasterCard and Visa, the companies ushering in the change. But many independent merchants and smaller chains including have been slow to implement the change because of the cost and volume of machines that need updating.
“We began readying our stores to accept chip-enabled credit cards a couple of years ago when we replaced PIN pads with EMV-capable terminals at checkout lanes,” said Tara Deering-Hansen, Hy-Vee spokeswoman. The supermarket chain has more than 230 stores in eight states, including Iowa.
“Despite our significant effort and planning, the state of the industry is such that many software vendors are not ready for the transition,” she said. “Many retailers across the country are like us and they’re waiting for their vendor partners to provide the software needed to communicate with already installed EMV card readers.”
Hy-Vee had hoped to make the transition by Oct. 1, but the company now predicts the technology will be available in its stores shortly after the first of the year.
Banks also have been slow to replace customers’ magnetic stripe cards with the new microchip-enabled cards. A CreditCard.com survey completed in early September found that 60% of Americans had yet to receive the new chip cards.
The deadline doesn’t change much for credit-card users, who still are not liable for credit-card fraud.
And don’t worry if you don’t have one of the new cards. Even retailers with updated technology will continue to accept both versions of credit and debit cards for the foreseeable future.
“There’s no demand that a consumer or a merchant would need to have a chip card or the chip technology on Oct. 1,” said Patrick Dix, spokesman for payment-processor Shazam. “For the consumer card holder, there’s really no change.”
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The cards are an important move toward better credit card security, said Doug Jacobson, director of Iowa State University’s Information Assurance Center. But the current change is only the beginning.
“The first step is kind of a baby step and doesn’t buy us a lot,” said Jacobson, who is also a professor in the university’s electrical and computer engineering department.
That’s because most chip credit card users still will sign for purchases. The ultimate goal is to move toward widespread use of chip-and-PIN credit and debit cards as is the case in much of Europe.
The chip cards have better built-in defenses against fraud that make them much more difficult to duplicate than the ubiquitous magnetic stripe cards, Jacobson said.
“Today, with about $50 worth of equipment, I could copy your magnetic stripe and start replicating cards,” he said.
With chip cards, account numbers and expiration dates aren’t actually transmitted between customer and merchant. The chips create a one-time code to fund transactions — information that would be useless to a thief trying to replicate cards.
Jacobson expects that American consumers and businesses will need years to fully migrate to the new cards.
“We’re a giant credit-card market, and there are a lot of cards that have to be replaced,” he said. “I don’t know how many credit cards the average American has, but it isn’t one.”
Many credit-card issuers are like Des Moines-based Bankers Trust, which started a slow roll-out of chip credit cards in August.
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Existing credit customers will receive chip cards as their old magnetic stripe cards expire or upon request. Debit cards won’t be updated until next year, said Stephen Sladek, the bank’s commercial banking product manager.
Sladek says massive data breaches have made customers pay more attention to account security issues. And even after adoption of EMV technology, customers still will need to monitor their accounts closely.
“It’s not 100% foolproof,” he said. “It’s not going to stop 100% of fraud.”
Online purchases won’t rely on the technology, for instance.
The new cards cost at least twice as much as the magnetic stripe cards, said Doug Gulling, chief financial officer of West Des Moines, Iowa-based West Bank.
And less than 20% of small retailers have adopted the new technology, said Jim Henter, president of the Iowa Retail Federation.
“Many of the larger retailers are up and running, but some of the smaller ones have a lot of integration issues to deal with,” he said. “It’s a work in progress.”
Ellen Martinson, who owns jewelry boutique Leona Ruby in Des Moines’ East Village neighborhood, got her new payment terminal last week and started using it right away. She said the transition was painless.
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“There was not a cost for us. Our payment process company called and said they needed to swap out our terminal or we could be liable for fraudulent charges,” she said. “It took about 30 minutes, and we were up and running.”
She estimated that about a third of her customers have chip cards.
“Many are familiar with the process from overseas travel. Others just need a little instruction,” she said. “It is just going to take a couple months before it becomes routine.”
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Casey’s, the Ankeny, Iowa-based convenience store chain with about 1,850 stores in 14 states, has equipped all of its stores with the equipment needed to handle the new technology.
“But it’s not up and running,” said Bill Walljasper, senior vice president and chief financial officer. Terminals inside the stores will become functional next year, and the ones at the fuel pumps will be activated in 2017, he said.
“The benefit is to customers who can be more confident in using their cards,” he said.
As U.S. merchants begin transitioning to chip-card readers, consumers will notice the payment process works a little differently. Not all devices will look the same, but the steps are nearly identical.
1. Insert your credit card into the front of the card reader with the chip facing up rather than swiping it.
2. Keep it in the card reader and follow the prompts on the screen until your transaction is complete.
3. Remove the card. If a signature is required, just sign the receipt and you are done.
The chip card still will have a magnetic stripe for use at traditional machines. The new cards allow the transfer of card information over a small chip, rather than the magnetic strip. The chips are considered safer because they don’t pass out account information. Instead, they transmit a one-time encrypted code to finance transactions.