What's Going On With EMV Smart Chips?

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Are you wondering why you are still swiping some credit cards and inserting others? On October 1st of 2015, the credit card industry reached a milestone when it underwent the so-called liability shift. On that date, the cost of fraudulent transactions shifted to the merchant or the card issuer, depending on which one had failed to update its systems to the latest technology. Yet six month's later, many cardholders are still confused and retailers have a long way to go.

The Cardholder Perspective

It's a tough time to be a credit card user in a hurry. We rely on our credit cards for secure, convenient, and fast transactions, but the speed has certainly been lacking in the last six months. Many merchants are now accepting credit cards with EMV smart chips, which are used in a completely different way than the old magnetic stripes. To read a credit card's smart chip, it has to be inserted into the machine, and it's sometimes rejected if it's attempted too early. In addition, the cards must remain in the terminal during the entire transaction, which can take up to 30 seconds. Although this doesn't seem like a long time, it's far more than the fraction of a second required to swipe a card.

Adding to the confusion is that many retailers still require you to swipe a card, and there is little way to know what you are supposed to do in advance. To make matters worse, some retailers have terminals that appear to accept chip equipped cards, but haven't activated that functionality. And in other cases, the place to insert a chip card is concealed beneath the keypad, further confusing customers.

The Merchant's Point of View

It used to be that merchant's were able to rely on credit card networks to provide security for their transactions. So long as the merchant followed the rules, they were not responsible for the cost of fraudulent transactions approved by the payment network. But since the liability shift, they have some skin in the game, as they can be held liable for fraud if they've failed to upgrade their systems to accept chip enabled credit cards. Since these upgrades are expensive, they are faced with a choice. On one hand, they can save money on infrastructure and risk paying for some fraudulent transactions. On the other hand, they can pay for the inevitable upgrade now and be held harmless if a fraudulent transaction occurs. As a result, merchants who deal in sales of larger amounts moved quickly to implement terminals with chip readers, while those who mostly make sales of smaller amounts have tended to take a wait and see approach.

But why do some merchants have chip compatible terminals that aren't enabled to read chip enabled cards? It turns out that some credit card processors are replacing retailer's old terminals with chip compatible models, but are imposing large charges on the software upgrades required to activate them.

Bottom Line

Change is never easy, and busy credit card users may not have the patience to figure out which end of the card they need to use every time they make a purchase. But as time goes by, we can expect the magnetic stripes to go the way of pay phones and cassette tapes even if this progress costs us a few seconds on every purchase.

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