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Few retailers ready for microchip credit, debit cards

September 28, 2015

Tommy J. Dant, who owns the James Dant men's clothing store on the east side, said he's been inundated with sales pitches to upgrade his payment processing system to one that accepts credit and debit cards with microchips.

Because of the cost and time associated with getting new terminals, software and label printers, he decided to stick with his current vendor. But he's unsure when the upgrades will arrive.

"We've been trying to contact that company that we work with, and they're supposed to have it ready by the end of this month," Dant said. "But as of now they don't have it yet. I think they're still working on it."

Dant is among many local retailers large and small that are unlikely to have the new so-called EMV terminals set up by Oct. 1. Ohio-based Kroger, which has 45 stores in the Indianapolis area, already has deployed new terminals for both card swiping and chip reading in all U.S. stores. For now, Kroger is still testing the chip-reading functionality.

Some merchants, including Broad Ripple Bagel and Deli, said they weren't aware of the new technology.

EMV stands for Europay, MasterCard and Visa, the companies that created the chip standard in the 1990s. The rectangular chips are more secure than magnetic stripes, industry experts said, because magnetic stripes leave credit card numbers and other sensitive information at the point of sale, while chip cards create one-time transaction tokens that are useless to fraudsters.

Starting Oct. 1, the EMV cooperative said, retailers who don't use chip-ready terminals will be liable for any fraudulent transactions, a liability that today falls mostly on banks and card issuers.

"We're moving from stripe-and-swipe to chip-and-dip," said Bill Bondar, senior vice president of retail payments at Pittsburgh-based PNC Bank, speaking about how the cards are used.

"It's a behavior change. People have been conditioned to [swiping] over the past 50-plus years, so it'll be a pretty big change for people."

Over the past several months, banks and other card issuers have been sending consumers updated cards that have both a magnetic stripe and a metallic embedded chip in preparation for the shift. Officials at payments solutions provider Moneris said they expect about 58 percent of general purpose credit cards to be EMV-compliant by the end of 2015

According to a recent survey by payment-industry publication The Nilson Report, losses from card fraud totaled about $16.3 billion globally in 2014, or roughly 5.7 cents per $100 spent. The U.S. accounted for nearly half of that, despite only generating about 21 percent of all transactions.

“Multiple factors contributed to that gap,” David Robertson, publisher of The Nilson Report, said in written remarks. “Nothing mattered more than the lack of an EMV-compliant infrastructure.”

High-profile data breaches in recent years at Target and Home Depot have prompted U.S. card issuers to adopt EMV chip cards, which are near ubiquitous in Europe and Canada. But the transition will likely be a slow and gradual one, especially given the holiday season retailers are entering.

Officials at Moneris, a payment solutions provider, expect that just fewer than half of all point of sale terminals in the U.S. will be EMV-capable by the end of 2015. The Strawhecker Group, an industry research firm, estimated that only 27 percent of retailers will have EMV terminals running in October.

"This is literally the worst time of year that they could have done the EMV thing for retailers," Dant said.

Kroger spokesman John Elliott said the company is testing the terminals in one Cincinnati store for "software compatibility with our systems and compatibility with the various banking partners."

After that, he said, a store in Illinois will conduct tests starting Oct. 1. He said he's not aware of an end date for testing, but it will go on "until it's right." Training for cashiers and other employees is already under way.

"From our perspective, these chip cards are more secure and will provide a much more effective electronic data trail," he said. "So while there's a bit of transition and work—actually a lot of work—involved, they're more secure and thus better for us and the customer."

Some retailers expect to be EMV-ready soon, though. Corey Bee, president of Chatham Arch clothier Righno, said he's ordered new EMV card readers from San Francisco Square Inc. Apple Pay features were his driving motivation, but he'll be satisfied knowing his store is compliant.

"People clearly have it and want to try it out," he said of Apple Pay, which allows iPhone users to make transactions by holding their devices near terminals. "I mean, the chip thing as well would be great."

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