Businesses are falling behind schedule when it comes to being able to accept chip-enabled credit cards, a new survey finds.
Despite an October milestone that largely shifted the burden of liability to merchants, only 37% of businesses are currently able to accept chip-enabled credit and debit cards, according to a new survey by The Strawhecker Group, a management consulting firm that works with the global payments industry.
That’s fewer than the 44% that were expected to be ready based on a previous survey taken by Strawhecker.
Confusion about the new EMV or chip-enabled technology, as well as concern about making such a significant transition during the holiday shopping season, likely contributed to the lag, says Jared Drieling, Strawhecker’s business intelligence manager.
“I think, personally, the holidays had a lot to do with the slowdown,’’ Drieling said, noting that even some major retailers who had the necessary chip-processing terminals didn’t utilize that function at the end of the year. “Even merchants who were EMV ready … had some concerns around holiday season that it might interfere with sales.’’
The U.S. is falling in line with other nations, such as Canada, Australia and Brazil, in shifting to the use of microchip-embedded credit and debit cards. Considered more secure than traditional cards that require the swipe of a magnetic stripe, the chip technology produces a unique code for each transaction. That makesthe cards harder to counterfeit and prevents them from being used for future fraudulent purchases.
In October, the switchover hit a critical threshold when merchants. who were presented with a chip card but who did not have a terminal enabled for chip transactions, could be held liable for fraudulent transactions resulting from the use of a counterfeit card. That marked a liability shift away from the banks.
But some retailers have complained that banks and credit card companies have chosen to issue chip cards that require a signature, rather than a personal identification number. The PIN, they contend, would be more effective in fighting fraud.
“Retailers remain frustrated that the investments they have made in new terminals is not being met with a similar investment by banks and credit unions in chip and pin technology,” Jason Brewer, spokesman for the Retail Industry Leaders Association, said in an email. “The chip and signature cards American consumers are receiving to replace old swipe cards are still less secure than the cards issued in Europe, Canada and the rest of the industrialized world.”
Smaller retailers have also struggled. “Even for those that have purchased and installed new machines in the store to accept chip-enabled cards,” Brewer says, “in many cases there is a backlog to have the terminals programmed and tested so that they can be used.”
But Brewer adds that a growing number of big retailers have activated their chip terminals this year. And Visa has noted significant progress in the chip transition. The U.S. now has more Visa chip cards than any other nation, with more than 212 million cards issued as of December. And the number of merchant locations that were able to process chip cards more than tripled in the last six months of 2015, rising to 766,000 — an 872% uptick over 2014, Visa says.
“Shifting the entire U.S. payment system to EMV chip technology is a massive undertaking,” Stephanie Ericksen, vice president of risk products for Visa Inc., said in an email. She added that based on the pace achieved in other countries, it will likely take four or five years for roughly 90% of transactions in the U.S. to be completed by a chip card. “But we’ve already seen tremendous progress in the four months since the October liability shift, both in chip cards issued and chip terminals enabled. … And with the holiday season behind us, that number continues to grow substantially each week.”
Drieling says that going forward, the road should be less bumpy.
“We’re seeing quite a bit of progress now that some of that confusion has settled down,” he says, adding that The Strawhecker Group survey anticipates roughly 72% of all merchants will be ready to process chip cards by the end of this year.
Although some smaller businesses may ultimately decide the cost of becoming chip-enabled outweighs their potential liability for fraud, merchants “in a high-risk category, like a jewelry store … probably felt some of that liability shift hit (their) books last year after the October 2015 starting line,” Drieling says. “So for those merchants who’ve not migrated, I’m sure they’re aggressively putting in place plans now.”