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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

Major U.S. banks have been sending chip cards in increasing numbers to consumers for the past year, but a recent survey of 5,027 Americans found that 54% hadn't received a chip card from a bank as of August. The survey also found that 56% surveyed didn't know what a chip card is, and only 51% said that the chip technology would make them feel more secure.

Several analysts have said that introducing chip cards during the coming holiday shopping season could cause delays and lines at in-store payment terminals. It takes a few seconds to read a chip card, once inserted into a terminal, which makes it a bit slower than swiping a magnetic strip card. Plus, some clerks won't know how to explain the change in procedure to customers, analysts predicted.

Many terminals will be equipped to allow users to touch or nearly touch the chip card to the terminal to authorize a payment. That would be similar to using a smartphone or smartwatch equipped with near-field communication technology to authorize a payment from a mobile payment app.

Shades of Y2K anxiety

Some analysts have compared the concerns over the U.S. chip card conversion to the anxiety that developed prior to the Year 2000 conversion that affected nearly every computer globally. Of course, the U.S. chip conversion is considerably smaller in scale.

In the Y2K example, work was done by major institutions and governments for years in advance to replace the two-digit field used for representing a calendar year with a four-digit field. That work, with a few exceptions, led to a nearly seamless advance by computers to dates on the morning of Jan. 1, 2000. Some analysts have said that in a similar fashion, nothing dire will happen if Americans don't suddenly start using chip cards on Oct. 1.

In fact, average card users were never going to be liable for card fraud after Oct. 1, according to repeated statements by banks. Banks have said that customers still need to report a lost or stolen card, however.

A problem of immense scale

A big part of the slow rollout of chip cards in the U.S. comes from the sheer size of the conversion. There are about 12 million card readers at payment terminals in the U.S. that need to be converted to accept chip cards, but the payment terminal industry and analysts believe only about half have made the change.

Meanwhile, there are about 1.2 billion debit and credit cards in circulation in the U.S. among 335 million residents. Eight major U.S. banks that account for half of the U.S. card volume have estimated that about two-thirds of their cards will be reissued as chip cards by the end of 2015.

 

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