Confused if you should "dip" or swipe your new chip card?
You might be haunted by the memory of the last time the machine balked when you inserted your chip credit card in the slot — and you suffered the impatient glares from that long line of people behind you.
It can take time for new technology to settle in. Chip cards, designed to curb fraud, have been in use in Europe and the rest of the world since 2002, but they're new to the United States.
As a recent Planet Money podcast episode calculated, it sometimes takes six to 15 seconds for a chip card to be read. Compare that with the less-than-one-second swipe of your conventional credit card.
It's a frustration recognized by the industry. Visa announced Tuesday a new technology, the Quick Chip specification, that it says will speed up the process — you can finish dipping your card in the terminal in less than two seconds while you wait for your items to be rung up. The new Visa specification will be provided free to payment processors, banks and payment networks, and they can then offer it to merchants either free or for a fee.
But other than the wait time, there are many other frustrations as the U.S. makes its long-awaited shift to chip cards.
Consumers Have The Chip Cards, But No Place To Use Them
According to a CreditCards.com survey published in April, 70 percent of U.S. credit-card holders now have a chip card — close to 30 million Americans received those new cards in the past six months.
But they don't have many places to "dip" their cards. A survey by The Strawchecker Group found that only around 37 percent of merchants were expected to be ready to accept chip cards in January.
You wouldn't be alone if you see the gleaming new card readers sitting around, with a tape saying "do not use" plastered over it. J. Craig Shearman of the National Retail Federation wrote in March about his own experience, and he blamed the lag on the credit card industry and its delays in certifying the machines — which brings us to the next point.
Retailers Have The Machines, But Need Certification
In early December, a ConsumerWorld.org survey of 48 retail chains found that all of them had payment terminals that could accept chip cards, but only 11 chains had actually enabled the payment process.
So why are these machines just sitting around? A New York Times report in March showed that many midsize businesses had the machines but were awaiting certification, which in some cases can take months. The payment hardware and network have to be certified by payment processors.
Banks blamed retailers for updating their terminals at the last minute, while the retailers blamed the banks for delaying the certification process. Since Oct. 1, 2015, retailers bear the costs of fraudulent transactions if they do not use chip-card payment systems.
Adapting To Technology Is Not Cheap
Overhauling the system can cost money. According to the Federal Reserve Bank of Chicago, upgrading the payment terminal can cost $200 to $1,000 per device for retailers. Some merchants may opt for newer technologies. Square, for example, offers contactless and chip readers for $49.
Retailers aren't the only ones struggling with the shift. Even subway systems are experimenting with smart payment systems, although Washington, D.C.,'s beleaguered Metro just scrapped its plan to install technology at its gates that would have allowed riders to tap or wave their chip-enabled credit cards or smartphones to pay their fares.
But the upgrades are, in some sense, unavoidable. The U.S. is the last major market to still use the swipe-and-sign payment system. It has the highest number of card fraud cases in the world, despite accounting for only 24 percent of worldwide card usage.
The data breaches in Target and Home Depot sparked concern about the safety of payment systems in the U.S. MasterCard and Visa set October 2015 as a deadline for businesses to switch their payment systems to read chip cards — a technology that generates a unique code for each transaction and is seen as a safer option.
According to the Smart Card Alliance, the U.K. and Canada saw their fraud levels fall dramatically after implementing the system.
"Fraud always moves to the weakest link," said Oliver Manahan in the Planet Money podcast. Manahan worked for MasterCard when the company started switching to chip cards. After France adopted chip cards, fraud moved to the U.K. Eventually Europe adopted the technology — and fraud moved to other places, like the U.S.
However, with the shift toward mobile and electronic payments, preventing fraud may require new solutions. Mobile and electronic payments such as PayPal and Apple Pay, which uses near field communication technology, may potentially disrupt the payment sector.
By then, maybe we'll have to adapt to a new technology, again.
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