As of October 1, all U.S. retailers are expected to have the new, more secure chip card payment terminals installed at their checkout counters. According to a recent survey from management consulting company The Strawhecker Group, however, only a quarter of those merchants have made the appropriate preparations to process chip card transactions by the deadline. Those retailers that did not migrate to the new technology before October 1 are now responsible for the financial liability for credit card fraud that occurs with cards using the old magnetic stripe.
The EMV System
The microchip-embedded cards, also known as chip-and-PIN or EMV cards (Europay, Mastercard, and Visa), reportedly offer a more secure alternative to the traditional magnetic stripe card. With the EMV system, each transaction generates a unique code, thereby guarding against criminals who steal and reuse card numbers on counterfeit cards.
Signatures are currently still accepted as authentication, but shoppers are encouraged to set up a PIN code to enter with each transaction as an additional protective step against fraudulent activity. As with the old cards, consumers will not incur any liability for fraudulent use of the new cards.
Card issuers initiated the changeover in late 2011 in response to a series of retail data breaches, and yesterday’s deadline served as a wake-up call to retailers to remind them of their new liability. Experts say it will take several more years to fully complete the shift. Mid-sized and small retailers, especially, may need additional time to budget for the expensive conversion to the new infrastructure.
Other countries, including Australia, Brazil, Canada, and most of Europe, adopted the technology years ago and have seen a successful reduction in credit card cloning. However, consumers and merchants alike must remember that even total EMV compliance cannot prevent other types of credit card fraud activity, such as fraudulent card-not-present (CNP) transactions made online or over the phone.