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Chip card reality check: Oct. 1 deadline termed a 'soft incentive'

Matt Hamblen | Sept. 23, 2015
Liability affects merchants, not consumers; full adoption of chip cards in U.S. could take years

Citibank credit card with an EMV chip

Despite an Oct. 1 deadline for U.S. merchants to accept secure chip-enabled credit and debit cards, experts believe it will take years for the conversion.

"Realistically, we should expect the adoption of chip cards in the U.S. to take a few years," said Avivah Litan, an analyst at Gartner who has been following the conversion for a decade, in an interview this week.

Oct. 1 is the deadline for merchants to begin using newer point-of-sale terminals to accept chip cards. Meanwhile, banks are steadily sending chip cards to millions of customers as replacements for magnetic stripe cards. Chip cards are more secure than the older technology, and the U.S. is one of the latest countries to make the conversion.

If merchants fail to meet the Oct. 1 deadline, they will be liable for financial losses due to card fraud. If a bank fails to provide a chip card to a customer, the bank will likely be liable, assuming a merchant has updated the terminal needed to read a chip card, analysts explained.

"The liability shift deadline is just a soft incentive to make this chip card adoption happen," Litan noted. "My estimate is that it will take at least two more years for the majority of transactions in the U.S. to be 'chip on chip,' which means a chip card is inserted into a chip-accepting terminal."

Litan said that merchants will widely accept both magnetic stripe cards and chip cards for the next three to four years. That means that even if a bank has failed to provide a chip card to a user, a magnetic stripe card will work almost anywhere in the U.S. where it had previously been allowed.

"Merchants don't want to deny sales until they are confident that in most cases, the consumer presenting a mag-stripe card can alternatively present a chip card," Litan added. "Mag-stripe readers will not be discontinued until 80% to 90% of cards coming into a retailer are chip cards. Again, no one wants to turn away a sale."

The situation facing consumers will be far different in many other countries outside the U.S., especially in Canada and Europe, where chip cards are already in widespread use. In the UK, for example, it is nearly impossible to find a retailer who will accept a magnetic stripe card.

"That's because chip cards for UK residents are essentially ubiquitous, so UK merchants have no interest in accepting a mag-stripe transaction that has a strong possibility of being a fraudulent or counterfeit card where they will be financially responsible for fraud," Litan explained.

Part of the reason the U.S. lags behind other countries in converting to chip cards is that magnetic-stripe card fraud was not nearly as widespread in the U.S. 15 years ago when Europe was facing a far bigger fraud problem, analysts said. The situation has changed in recent years, and the U.S. is making the shift to chip cards to reduce the financial losses faced by banks.


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