Chip-Enabled Cards Are Hurting Small Businesses

NJ Spotlight News | October 31, 2016
A survey says 71% of people plan to do their holiday shopping online due to the new chip-enabled card technology.

By Michael Hill

Carpe Diem in Hoboken is among the thousands of businesses still relying on swiping customers’ charge and credit cards at the point of sale instead of switching to the more secure chip-enabled cards. Small businesses say chip reading equipment is expensive.

Nevertheless, owner Joe Jones says he’s making a change and soon.

“It’ll be somewhere in January or February that my point of sale company will be giving us new equipment to facilitate the new chip,” Jones said.

To encourage the switch to the chip-enabled cards, a year ago credit card companies and banks shifted the fraud liability to retailers who had not upgraded. Instead of swiping cards with a magnetic stripe, customers must dip the chip cards that generate a specific code for each transaction to make it harder to counterfeit.

The president of the New Jersey Retail Merchants Association, John Holub, says the roll out has been clumsy.

“The credit card industry really has done a horrible job rolling this out,” said Holub. “A tremendous amout of my members have spent a considerable amount of resources, time and energy, to implement this new technology and unfortunately the credit card companies have been really slow in certifying all the hardware we’ve put in our stores and it’s really  created a lot of confusion not only for retailers but the consumers as well.”

Online shopping is not equipped for the chip system. At brick and mortars, the dip takes longer than the swipe for approval and it’s one reason a recent survey found 71 percent of consumers plan to do their holiday shopping online. That’s disturbing to brick and mortars as holiday sales are expected to top last year’s by three percent.

Holub said, “We want to provide a good experience for the consumer and anything that hurts that we’re concerned about.”

Randy Vanderhoof directs the U.S. Payments Forum that represents several factions in the payments industry.

“Consumers have to get used to the differences of inserting the card and following the prompts… But, also there’s a number of things that can be done to make the transactions faster once the card is inserted in the payment terminal. Many merchants have been struggling to try to just get their equipment installed and operational and haven’t really looked at things they can do to optimize the transaction speed yet. So, what we’re expecting to see over the next few months and years is actually a gradual improvement in that process as they do some fine tuning at the point of sale to make those payment transactions happen faster,” Vanderhoof said.

Visa considers New Jersey one of the safer states for shopping because it has the highest percentage of chip-ready merchants. Visa says nationally counterfeit fraud at chip-ready merchants fell by 35 percent from March to March.

Retailers say if better security is the goal than the U.S. can do better.

“We have been calling on the credit card companies for years now to require a chip and a PIN, a PIN code just like you use with your ATM card. That is by far the most secure transaction possible. That would provide the security merchants, consumers and industry want. Unfortunately, the U.S. is the pretty much the only country that doesn’t require the chip and PIN,” Holub said.

“But, we need to get to this new platform where we’re using chip cards regularly and then slowly we can introduce other technologies as the demand requires,” said Vanderhoof.

In the meantime, the new chip system has led to a lawsuit that the credit card industry is vigorously fighting. Four grocery stores in other states are trying to recoup the $6 billion it cost to buy and install the new chip readers. The stores say one credit card company CEO told analysts in 2014 that his company met “in a room” with others in the industry to come up with the chip system plan. A federal judge had said that “raises a plausible and reasonable suggestion of collusion.”