In an effort to mitigate fraud, credit card issuers are sending consumers new chip-enabled cards, which go into effect Oct. 1.
But the National Retail Federation says the rollout is fraught with problems, and on a conference call earlier today called the launch an incomplete solution to credit card fraud. Moreover, the NRF says there’s a huge backlog of retailers trying to implement the technology by the launch date.
The cards use so-called EMV technology, which stand for “Europay, MasterCard, Visa.” The technology involves embedding cards with a microchip that creates a unique, one-time code when used with a chip-enabled reader and/or register. The added layer of protection is designed to prevent counterfeits and other fraudulent transactions from occurring in-store.
NRF senior vice president for government relations Mallory Duncan, said the “new chip cards are a half-baked solution to the fraud problem.”
Duncan said criminals are smart, and the new chip cards don’t protect against online activities. He said as a consumer, the new cards “are not going to solve your fraud problems.” A better solution, he said, would include chip-enabled cards, which include a user’s signature, as well as personal identification numbers (PINs) and encryption technology on the business side of the transaction.
Liz Garner, vice president at the Merchant Advisory Group, said on the NRF call that “chip-and-signature”-only cards address in-store transactions and related fraud, and are “not a silver bullet for combating fraud.” Duncan and Garner said there’s currently a “huge backlog” to implementing the technology that accepts the EMV cards.
The banks are pushing for the chip cards because they make more money per transaction than they would from a more secure solution, Duncan and Garner said. Moreover, the NRF said “under current credit card industry rules, banks are responsible for fraud losses when a counterfeit card is used and retailers are responsible when the person using the card is not the legitimate cardholder.”
But starting this Thursday, banks will “no longer honor their share of fraud costs if the card used is a chip card and the retailer does not have a chip-card reader,” the NRF said in a statement. “Many retailers believe the liability shift is unfair because the chip reduces banks’ exposure to fraud while the lack of a PIN leaves retailers exposed to fraud.”
Chase Paymentech said in a statement that with the liability shift, if a “chip card is presented to a merchant that has not adopted a terminal that is certified for chip card acceptance, liability for counterfeit fraud may shift to the merchant’s acquirer — who may then pass this fee back to the merchant.”
The bank went on to note that the liability shift “encourages chip adoption since any chip-on-chip transaction (chip card read by a chip certified terminal) provides the dynamic authentication data that helps to better protect all parties. In addition, if a counterfeit magnetic stripe card is presented at a chip certified terminal, the liability for the counterfeit fraud will be the responsibility of the card issuer.”
The NRF estimates that new card readers cost about $2,000 each, or about $35 billion nationwide. “Most major retailers and many smaller merchants have installed the equipment, but many have reported that activation has been held up by bottlenecks, such as delays in having the systems certified by card companies,” the NRF said. “That puts many retailers at risk for liabilities through no fault of their own.”
“The chip cards are a step forward, but shoppers are concerned that they don’t go nearly far enough,” Duncan said. “Unless the new cards require the use of a PIN, they will only provide half the safeguards needed to stop increasingly sophisticated criminals. The card industry’s refusal to give consumers the full protection they want continues to be a huge disappointment.”