MONEY

Move to safer 'chip' credit cards is sluggish

Kevin Hardy, and Patt Johnson
DesMoines
Photo illustration. Reporter Patt Johnson demonstrates how to use a bank card with chip technology at Walmart in Ankeny, Iowa, Tuesday, Sept. 29, 2015.

Judy Naver paid for a cart full of items with her debit card this week at the Wal-Mart in Ankeny.

But instead of swiping the magnetic stripe, she inserted her card, equipped with a new security chip, into a credit-card reader. She 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).”

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.

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 Iowa-based chains including Kum & Go, Hy-Vee and Casey’s General Stores have been slow to implement the change because of the cost and volume of machines that need updating.

NEED TO KNOW: New chip credit cards are here

“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. “Despite our significant effort and planning, the state of the industry is such that many software vendors are not ready for the transition. 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 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 percent 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 there's no need to 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.”

The first step

Doug Jacobson, director of Iowa State University’s Information Assurance Center, said the cards are an important move toward better credit card security. 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 ISU’s electrical and computer engineering department.

That’s because most chip credit card users will still 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.

MORE: How EMV cards will protect you from fraud

The chip cards have better built-in defenses against fraud that make them much more difficult to duplicate than the currently 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 it will take years for American consumers and businesses 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.”

A slow transition

Bankers Trust started a slow roll-out of chip credit cards in August. 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 will still need to closely monitor their accounts.

“It’s not 100 percent foolproof,” he said. “It’s not going to stop 100 percent of fraud.”

West Bank will start issuing new chip cards to customers in January, said CFO Doug Gulling. He said the new cards cost at least twice as much as the magnetic stripe cards.

MORE: 60% still have old credit cards as of Oct. 1

Less than 20 percent 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, said she got her new payment terminal last week and started using it right away. She said the transition was painless.

“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. It is just going to take a couple months before it becomes routine,” she said.

Casey’s, the Ankeny-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, while noting that fraudulent activity is rare at Casey's.

HOW IT WORKS

  • Rather than swiping your credit card, you will insert it into the front of the card reader with the chip facing up.
  • Keep it in the card reader, and follow the prompts on the screen until your transaction is complete.
  • Remove the card. If a signature is required, just sign the receipt and you are done.
  • The chip card will still have the magnetic stripe for use at traditional machines.