There may well be no single technology-based product in the U.S. that has received more negative publicity in the last year than the much-maligned chip-enabled credit card. Merchants have been slow to change their systems to accept it, consumers have experienced longer waits at checkout stands because of it, and the card’s introduction has led to a major spike in online fraud as cybercriminals abandon credit card scams at brick and mortar retailers. As the pioneering cryptographer Whitfield Diffie famously declared at one cybersecurity conference last year, the introduction of chip cards were “a nice visible thing that banks can do in a year of complete embarrassment.”
Yet, in the midst of all the negative noise surrounding these “EMV” cards, whose embedded chips are designed to provide more protection than the older “magnetic stripe” swipe versions, there are rays of sunshine breaking through the dark clouds. Positive news in the chip card rollout could be found at the TRANSACT 16 payments technology conference in Las Vegas last week, as corporate financial leaders and analysts gathered to assess the latest trends in the rapidly evolving financial technology industry.
The EMV chip card rollout was a prime topic of discussion, and industry leaders appeared eager to address the problems confronting merchants and consumers. One of the key messages was patience. As Jason Oxman, CEO of the Electronic Transactions Association, told the gathering on Wednesday, “Widespread adoption of new payments technologies takes time.”
In an effort to address complaints about slower transaction speeds at checkout registers, Visa announced at TRANSACT last week that they will implement a software upgrade for its chip cards which will reduce the total processing time to two seconds. Merchants have been reporting customer waits taking 15 seconds to a minute longer than the previous “mag swipe” method for a single chip card transaction.
Another sore spot among merchants has not only been the cost to replace existing terminals with those which can accept chip cards, but the complicated process of being certified for the transactions as well. Although an estimated 5-7 million payment terminals can now accept chip cards (about 50% of all terminals in the U.S.), barely one million of them have been certified.
This has sparked new business for startup companies in the transaction technology space, and several of them were on display at ETA’s show in Las Vegas. One of them – CardFlight – offers a complete certification package with their software and card readers.
Boomtown, another startup at the financial payments conference, has built their business model around providing 24/7 technical support for smaller, local businesses across the U.S. who are struggling with mobile and chip card technology. “With EMV coming, no one has organized a technical labor force to be on site to make sure those implementations happen properly,” said Alfred “Chip” Kahn who founded Boomtown. “We’ll take advantage of the rising tide to get traction and adoption.”
The chip card introduction has placed merchants in a vulnerable position because as of last October, they are now liable for fraud if they are not able (or willing) to accept the new payment standard. Despite this “carrot and stick” approach, chip card implementation has been uneven across the U.S. and evidence for this can be found in the “EMV Migration Tracker Report” released by CardFlight at last week’s conference.
CardFlight’s data, gleaned from hundreds of thousands of transactions in all 50 states over the last six months, shows that 88 percent of American Express cards now have chips, compared with MasterCard who had less than half of their branded plastic converted. States with the highest share of cards are currently California, Florida, and Arizona, while Utah, Mississippi, and Maine are lagging far behind the rest of the country.
The bumpy ride for the transition to chip cards could have a positive, although unintended consequence in the tech industry. The slowness of merchants to adapt their equipment and customer frustration may lead to an increase in the use of mobile payment solutions such as Apple Pay. All of this is being closely watched by gas station owners, because they don’t have to convert to the new chip card payment technology until October of 2017.
Most industry observers interviewed last week for this story still believe that ultimately, a vast majority of retailers will convert to systems that will readily accept chip cards, if not this year, then certainly by next summer. That’s the optimistic view from companies in the electronic payments world, who see a silver lining in the clouds that have surrounded this controversial change.