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October 1, 2015 marked the deadline for merchants and banks to make the switch to computer chip-enabled credit cards, also known as EMV cards. Now retailers – not card issuing banks – are liable for in-store fraudulent purchases. That sounds great on the surface, but unfortunately it’s proving a half-baked solution to a serious problem.
Problems Swiping Your New Card?
With the holidays behind us, many shoppers felt the headache of dipping their card to pay, which slowed down check-out times because the card must remain in the payment processor for about 10 seconds. This is because the new “smart cards" with EMV technology cannot be read on the old, traditional swiping terminals. You don’t swipe an EMV card; instead, you insert it and must hold it there for as much as 10 seconds. Fail to do that and the card won’t process.
Merchants are not happy, either, because with card transactions taking several seconds longer they cannot complete purchases as fast as they used to. Over the holiday shopping season, that meant fewer sales per hour for busy merchants. Retailers also have to switch over to the new terminals, but the demand for services to do that is much greater than the number of service providers. That leaves business waiting in line to make the transition, with smaller merchants frequently behind large business in the queue.
ATM Problems on the Near Horizon
Operators of ATM machines across the nation are also paying for expensive EMV upgrades. About two out of three ATMS are owned and operated by small independent companies that may not be able to afford the upgrade or financially justify the expense – which is as much as $2,000 per machine. As a result, many will likely just remove their ATMs, which could dramatically reduce the number of these machines available to consumers.
If you’re looking for a convenient ATM and cannot find one where it used to be, that’s probably the reason. The machines that are left behind and have been upgraded may charge you higher transaction fees, too, in order to cover the cost of the upgrade. None of this is good news for consumers who have already been dealing with exorbitantly high ATM fees charged by banks.
US Banks Miss an Opportunity
Major businesses have referred to the upgrade as “a joke" because new cards only require a signature. Closely guarded secret 4-digit personal identification numbers, though, are highly effective. Said a Wal-Mart executive, "Signature is worthless as a form of authentication. If you look at the Target and Home Depot breaches, not a single PIN debit card needed to be reissued in those breaches. The card number was worthless to the individual thief and fraudsters, because they didn't know the PIN."
“Chip and PIN” technology has been working quite well in other developed nations such as the UK for years, but banks in the US opted not to issue new cards with the added layer of security of PIN numbers. This is a noteworthy decision, since the US is the last of the G-20 nations to convert to EMV technology – which has been used in Europe for almost a decade.
A Shift in Criminal Focus
In 2012, the US accounted for almost half of all the card payment fraud in the entire world. The use of EMV cards will put a serious dent in the use of fake plastic used by counterfeiters, and that is going to make many consumers feel safer.
For anyone who shops online, however, that may be a false sense of security. Fraud related to “Card Not Present” or CNP transactions, such as payments made by phone or over the Internet, is likely to rise as counterfeiting of credit cards shrinks and criminal organizations shift their focus to get around chip-enabled obstacles. Card counterfeiting is expected to drop by $1 billion in 2017, while CNP fraud is expected to increase by as much as $5 billion.
While the intentions behind the transition to chip-enabled cards were good, the execution to date has been fraught with challenge. As more cardholders receive reissued EMV cards, the transition will reveal if it has served its intended purpose: to reduce fraud.