There is a huge change on its way in the form of chip cards. This change is scheduled to arrive in October.
From October 1st, the liability of transactions for fraudulent debit and credit cards will gradually move from the card companies to retailers if they have not invested in terminals that accept chip-based cards.
The chip cards are already being sent from banks to their customers. Some of the stores have already got the terminals, but the majority is still yet to get them.
Why are the chip cards better?
There are a lot of questions on the shift but few credible answers available. At the Transact 15 expo in San Francisco, where there is a gathering of companies in the electronic payment industry, many are wondering if the shift can be delayed and would banks mandate the PIN numbers instead of the signatures for purchases with new cards and would cyber criminals focus their attention online?
The chip card switch took place about ten years ago in most nations in Europe and now it is common across the world. However, the USA has lagged behind in this area mainly due to its complicated retail and financial systems. No one was willing to place the investments into new cards and new terminals.
These new chip cards now add a digital signature to the transactions being made in the payment industry. This allows the payment network to know that the card being presented is an official card and not a fake one. It has been observed that credit and debit cards with a magnetic strip are vulnerable to copying and this is why they are not secure. This is why chip cards are preferred over magnetic ones.
Who’s ready for the shift?
Retailers have to upgrade their payment terminals to be able to accept the new chip cards. Rod Hometh, Senior VP of strategic development, Ingenico, thinks that all large retailers are ready for the switchover. Ingenico is a credit card machines retailer. They have been gearing up for the last 2 years and even big retailers are nearing the deadline or are prepared already.
The problem is with the small businesses – they are way behind. The top reasons are costs and lack of being aware of the shift. The small handheld terminal has the same price as a smartphone. Upgrading costs thousands of dollars for small units of which there are many in the nation.
There are 6 million retail terminals in the United States and one million of them constitute 95% of the total transactions. Small retailers account for the remainder of 5 million terminals.
However, there are many retailers that are using this opportunity to upgrade their systems to get benefits from the new technology and software introduced in the last few years. This has been stated by Kevin Colaco who is the innovation mentor at Retail Cloud. Retail Cloud is a start-up that provides free point-of-sale system with premium add-ons.
So is it worth it?
There is an advantage in this approach and that is new terminals will include readers for NFC systems like Google Wallet, Samsung Pay and Apple Pay.
For people who are willing to embrace mobile payments, this switch means wider acceptance. However, new cards will also be expected to bring in a certain amount of confusion. In most nations, chip cards came on scene when PINs over signatures were used for the verification of a transaction. Several banks and retailers are expected to stick to the signatures while automated terminals like gas pumps might begin accepting PINs.
Card issuers are firm with their resolve on the October 1st deadline and most of the people involved have agreed that further delay will cause loss of trust in the switchover.