What retailers should know about the chip card switch

payment card. The difference is, when you use a magstripe card, you just swipe it down and it authorizes. With the chip card, you actually insert the card into the machine, it clamps down on the chip and reads the chip, and then it does the authorization.

NJ: Will most of the credit card issuers make the switch?
BL: There are several hundred thousand cards in the market already, if not millions, and the estimates right now are that almost everybody that has a card in their wallet will be carrying an EMV card over the next 36 months. What most are doing is, as cards expire, they’re replacing them with new chip cards, so it’s a migration to be sure, but we are seeing some issuers who are just wholesale reissuing all of their plastics and sending out all new plastics to all of their customers all at the same time, versus waiting to do it when their cards expire. That’s expensive for the issuer but the potential is to reduce fraud. While the focus internationally and in the early days might’ve been poor communication networks, the focus here domestically has everything to do with fraud and security.

NJ: Why is the switch to these types of cards being made?
BL: The United States market has held off on this for quite some time, until the brands--Visa and MasterCard--mandated it. Now we have our October date for the majority of retailers, which is a date when something very significant happens: it’s a shift from the bank to the retailer for liability of fraud. So the driving purpose for everyone to participate in this is that shift in liability. In today’s world, the regulations associated with Visa and MasterCard provide protection for the consumer and for the retailer in that the issuer of the card--the bank--is responsible for any fraud that takes place, as long as they follow certain guidelines. The issuer of the card has the choice; they don’t have to offer a card with a chip in it. But if they do, they get the benefit of more security for their consumer. In the event that a retailer is not using an EMV terminal that’s able to accept a chip card and there’s fraud, then the retailer has to take the loss. That should be significant for (retail jewelers) because obviously the average ticket price in the jewelry space is a lot higher than the average ticket price in, let’s say, the quick service restaurant or the small convenience store.

What we’re seeing is, especially in the area of higher ticket items, the chip prevents the type of fraud we call counterfeit fraud. That’s where I get your number, manufacture a fake card, and when I come into the store, I’ve got a card with my name on it that matches my ID but really it’s swiping your information. It looks like I’m me but I’m actually counterfeiting myself as you. The chip eliminates that because even if I steal all of your information, I cannot create a chip. There’s a lot of technology behind that, but really what it does is allows for an encrypted image of the consumer to be protected against counterfeiting.

NJ: What is the deadline for retailers to switch to accept the new cards?
BL: October is the first major shift. There are some specific industries that are delayed like fuel pumps and things like that, but for the most part, (retailers) will have a liability switch if they aren’t able to accept chip cards after October 31.

If they’re not equipped by then, they will have to accept the liability--only in the case where the consumer has a chip card and they can’t accept it. If somebody comes in without a chip card, that’s not going to change anything.

NJ: What exactly has to be done on the retailer’s side to make the switch?
BL: The change for retailers isn’t as much about the point-of-sale system as much as it is their card reader. If the retailer has a POS system and they’re working with their merchant processor--they’re probably using a VeriFone or Ingenico terminal or something like that--those providers have alternatives that are chip readers as well. This happens to come at a good time because updating the terminals to accept the chip cards also allows them to update the terminals to accept NFC (near field communication), which is used for Apple Pay and Samsung Pay. The POS might be a little more complex than just the terminal that accepts the payment, and in many cases it’ll just be an equipment upgrade.

NJ: Are there any problems or challenges that retailers might encounter along the way?
BL: The only problem or challenge that the retailer has to face is that both the consumer and the cashier are going to be experiencing a new thing. We spent the last 20 years teaching people how to use a credit card and teaching people behind the counter how to take a credit card. Now that experience is going to change, because instead of me walking up the counter, taking my credit card and swiping it or handing it over and someone keying it in, it’s going to have to be inserted and it’s going to clamp down. The terminals walk you through it, but it’s going to be a little “human clunky” for a while. So the most important thing is training your staff, making sure that you use it and get used to how it works.