Chip or dip? Moving to chip-based cards no picnic

After a recent spike in credit-card-related data breaches at Home Depot, Target and other stores, a new card security technology successful in Canada, Australia, Europe and elsewhere called “Chip-and-PIN” has become a popular topic of conversation in the USA. President Obama underscored the severity of data breaches by signing the BuySecure Executive Order requiring federal facilities to upgrade their card terminals to accept this technology that protects consumers against card fraud.

Despite these headlines and scary breaches, it concerns me that most credit card terminals in the stores and restaurants we visit every day don’t seem prepared to accept this card technology. This is especially surprising since most major card companies will make retailers more accountable for card fraud starting this October.

All this talk of credit card breaches really bothers me. To find out firsthand how prepared the USA is for the switch-over to chip-enabled cards, I recently stopped using cash and tried to pay for all my purchases with the chip part of my credit card (instead of swiping it with the familiar magstripe). What I discovered was that most of the staff standing behind the cash registers had absolutely no clue these chips even existed. In taxi cabs, supermarkets, drugstores, hotels, sandwich shops and restaurants, cashiers responded to me in a wide variety of ways. Generally, most of them became very impatient with my attempts to use a chip-based card. Sometimes, because I think they were simply confused, they grabbed the card away from me and swiped it themselves!

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In two encounters, we got closer – one cashier thought I was referring to proximity card technology known as near-field communication (NFC) where you wave your card or smartphone to pay. In a Boston-area shoe store, the woman behind the counter said excitedly, “We get lots of European customers who try to use their credit cards that way.” I was so excited I almost hugged her!

My best card experiences occurred at a sandwich shop in Lexington, Mass., And at a bar in New York City. In both cases, the cashiers proceeded with the transaction normally; the waiter in the bar was even surprised I was on this quest as he didn’t see what I was doing as all that unusual.

As for the credit card terminals, my semi-scientific findings discovered that nearly 45% of the terminals I encountered simply didn’t have the capacity to accept a chip-enabled card. (Note that this number is only slightly above the estimates of the EMV Migration Forum, which says 4.5 million of the 12 million terminals in the USA are chip ready.) On roughly 10% of the terminals I encountered, I noticed the slot for the chip was actually glued shut or purposefully covered up.

Both disappointed and surprised, I might have starved if I only had a chip-based card to buy things during my search. Despite promises that chip technology will become widely adopted in a rapid manner, I really don’t think that is about to happen. Yes, the card technology is there, but retailers aren’t ready to use it.

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Places such as Australia, Canada, the U.K., And France each took roughly four years or more to transition to chip-enabled cards. Based on the size of the USA, our transition is probably not going to go as rapidly as many – myself included – would like. I hope I am wrong in making that assessment, but I think the transition is going to take closer to six to eight years because of our larger and more fragmented payment ecosystem.

As consumers, what should we do? If you want to see card fraud rates decline, join me in my crusade by trying to pay with Chip-and-PIN! Contact your bank to ask when you will receive your own chip-enabled card, then try to use it. This technology is designed to protect your money and is an important step in establishing strong multilayered fraud protection for all of us as we go about our everyday shopping and retail interactions.

Joram Borenstein is vice president at NICE Actimize and a recognized expert in financial crime, anti-fraud, payments protection, consumer identity protection, risk management, IT audit and compliance.

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