Credit Card Chips Provide Enhanced Security To Customers, But Cost Businesses

NJ Spotlight News | September 23, 2015 | Personal Finance
About 200 million cards with enhanced 'chip security' are currently in circulation in the United States.

By Brenda Flanagan

When customers at Prato Bakery pay for goodies with a credit card they don’t swipe it, they stick it, so the machine can read the smart chip embedded in its tip. It takes a bit longer to process.

“They get a little annoyed, but once they start getting used to it, it’s like nothing else,” said manager Jonathan DeLeon. “I keep letting them know that this is going to be the newest thing and it’s better for them.”

Unlike the easy-to-duplicate magnetic stripe on old credit cards, these chips provide a superior level of encrypted security. In the US, they’re on plastic from Visa and Mastercard — which set an October 1 deadline for businesses to gear up for chip cards. Stores without chip card readers will be liable for fraudulent purchases.

“Right now, the liability, it would be would not be on them for a face-to-face transaction. After October 1 the liability will shift to them. So in the case of a fraudulent card, they’ll lose out every time,” said Jon Moore, National Sales Director of Nationwide Merchant Solutions.

That sudden exposure causes some concern at the Cotidiano Cafe, which has a Revel swipe-system that still relies on magnetic stripes.

“I don’t know,” said Kylie Lefkowitz. “I think it’s kind of not right that they’re changing the law so quickly without having time to let all the businesses know.”

But card payment processors say Cotidiano can ramp up slowly with little risk because shops like eateries, hair salons and doctors offices aren’t the fraudsters usual target. Big box stores like Target are, and Target’s already using chip card readers.

“Every register now reads the new chip cards. The old swipe cards the guest would swipe the card for the transaction. Now with the enhanced security the guard inserts their card into the card reader to complete their transaction,” said Target store team leader, Rob Saba.

“This change that’s happening with the payment cards only affects cards that are used in physical retail stores, and not used in online shopping sites,” said Randy Vanderhoof, Executive Director for Smart Card Alliance.

About 200 million smart chip cards are already in circulation in the US — you may get one in the mail soon. Chip card readers can cost $1,000 and some also require PINs to validate the purchase. Retailers are spending an estimated $8.6 billion to install the new chip terminals. In Jersey City, Kanibal and Company’s owner figures it’s technology she can’t live without.

“One of the things here that we always really value is security. We’re a small business, but we want to operate as a big business. Whatever the next technological advance is happening, we want to be able to update all of our materials to match it,” said owner Kristen Scalia.

The new smart chip scanner will arrive here at Kanibal’s sometime this week. They’re going to lease the system for now, as it’s lot more affordable that way.