By now, most Americans have gotten letters from their banks and credit card companies containing new "chip cards." Touted as a feature to help improve security, the new technology might reassure shoppers about the safety of their cards — if they could only find a place to use them.
Also referred to as EMV cards, the cards are now nearly ubiquitous in consumers' wallets thanks to a push by financial institutions to distribute them ahead of an October 1, 2015 deadline that shifted liability for purchases made with a counterfeit or stolen card from the banks to the stores where the fraudulent transactions take place.
But finding a checkout terminal where a customer can actually use the chip function on the card is another matter. Visa CEO Charles Scharf told investors on the company's quarterly conference call last month that a mere 17 percent of merchants that take credit cards have customers dip instead of swipe to make a purchase.
Since the chip encrypts information and is harder for counterfeiters to duplicate, security experts say relying on decades-old mag-stripe technology seriously negates the benefits chip cards provide. Still, Scharf said Visa feels "very good" about the progress that's been made so far, although he added, "We know we have a long way to go over the next few years to reach the critical mass of adoption."
This week, management consulting firm the Strawhecker Group released a survey that found only 37 percent of merchants have even invested in a terminal. Many mom-and-pop stores haven't bothered to buy the terminals, in spite of the October 1 deadline, because some (mostly smaller) banks were slow in distributing the new chip cards to their customers.
A survey by banking and payments technology company ACI Worldwide conducted last August found that, with just over a month to go until the October 1 deadline, only about three in five of the 1,000 Americans surveyed had received chip cards from their bank or credit card issuers. The survey also highlighted a general lack of knowledge among consumers about chip cards, how they worked differently from their old cards and why they were receiving them.
Although the comparison between Strawhecker's and Visa's numbers isn't quite apples to apples, the two figures would seem to suggest that a significant number of the retailers that have invested in new terminals haven't actually turned on and started using the chip function yet, said Strawhecker Group business intelligence manager Jared Drieling. Brick-and-mortar retailers, already in a pitched battle with e-commerce rivals, were loathe to introduce a new technology that could confuse, frustrate and possibly drive away customers, even with the risk of fraud hanging in the balance.
For independent businesses, the switch to an EMV-compatible terminal also can be expensive, costing upwards of $1,000 for both hardware and software (trade group the National Retail Federation put the total at closer to $2,000 once "other expenses" are factored in). Since the lifecycle of a payment terminal in a small store where it's not subject to heavy use is five years or more, these owners are willing to risk that they won't run across a counterfeit or stolen card until their next planned upgrade.
Ultimately, there's no single reason most of American retail continues to rely on mag-stripe technology, experts say.
"It's hard to point your finger on one thing. It was just a number of things that were contributing to where we are today," said Allen Weinberg, co-founder of management consulting firm Glenbrook Partners.
There was a shortage, and then a backlog, of the terminal hardware that included "dip" as well as of "swipe" functions, Weinberg said. Although that now has been resolved, getting payment software that can process chip transactions is the next big hurdle.
Despite the fact that the United States is a single country while Europe is an entire continent, the latter has a much simpler system for processing card payment. Programs written for the European market, where chip cards are the standard, can't just be overlaid on the American system, where more players, more competition and different regulations create a thicket of logistical challenges.
Just how many years could it take for all of this to get sorted out? The best anyone can do is make an educated guess.
Drieling estimated that we'll be halfway there by June, although penetration won't hit 90 percent until sometime next year.
"I think in 2016 we're going to see these numbers jump up quite a bit," he said, predicting that more readily available software will prompt more retailers who have the machines to switch them on, while the reality of having to absorb fraudulent charges would hit holdouts and spur them to upgrade to the new terminals.
"We know that it's going slower than was hoped for or expected," Weinberg said. "I'm relatively optimistic that within the next three years we'll see a meaningful increase."