Most POS terminals in the United States use a mag stripe reader to get the necessary account information. It’s my understanding that this makes cards very easy to clone leading to a lot of fraud. Chip-and-pin cards are supposed to be much less vulnerable to this type of fraud, and I know there is a push on for converting to chip-and-pin POS terminals. What will it cost for everyone to do this?
I can’t speak for the infrastructure, but POS terminals, even on the cheap side are about $500, mid range ones are about $700. I know, in the US, early adopters of chip and PIN are being forced to update something with them. If their machine can’t be updated they have to deactivate the chip/PIN part of it. For me, as a small merchant, it means I have no interest in buying a chip and PIN machine until it’s much more widespread and I don’t have to worry that it’ll end up being obsolete a year after I get it and I’ll be have to buy a new one much sooner than I would if I had just waited a bit longer. I’ll wait until more of the rules/laws/policies get ironed out. Let the people that can afford to be early adopters go through the growing pains with something this expensive.
Now, keep in mind that most merchants update their POS terminal every 10 years or so anyways, so as long as they don’t get rid of a perfectly good terminal just to get one with Chip and PIN and just wait until they’d be replacing it anyways, it wouldn’t really be costing them any more (or much more).
As for additional fees, though, I’m not sure if they’ll be higher or lower.
With online transactions there is often a little lag time. If you order something online there is an opportunity for the original card holder to discover the issue and report it. With cloned cards, the thief walks away with product in hand. With the liberal return policies of some places it can be walked into another store and converted back into cash or a gift card a few minutes later.
I think chipped cards are coming but are nowhere near the fraud-busters they’re portrayed to be. Mag stripes were once a high-security barrier. Cloned chip cards will follow as soon as it’s profitable to do so.
It is more profitable for the retailing world to be able to take payment with no hurdles on the consumer’s part than it is to close the door on fraudulent sales. A truly “locked” payment system that took time to process transactions would lower sales more than it reduced losses.
The US is converting, but to Chip & Signature rather than Chip & PIN. The simple fact is that in the US the average American has 2.19 credit cards. And since not all Americans have credit cards, the average number of cards per per person who has at least one credit card is much higher. The banks don’t think it is realistic to expect their average customer to remember that many PINs.
Chip & Signature cards can be used at online Chip & PIN terminals. Unfortunately, they can’t be used at offline Chip & PIN terminals. The warning that everyone gives is that there are some ticket dispensers at unattended European railway stations that cannot accept Chip & Signature. Also, travelers report that once they get away from the big cities, small merchants in Europe sometimes go into a panic if you tell them you do not have a PIN.
Chip & PIN cards will work at Chip & Signature terminals. However, the restaurant industry has a big problem. I understand that in Europe, the waiter will bring a portable card reader to your table for you to punch in your PIN. Most US restaurants do not have portable card readers. Rather, the waiter takes your card to the register and comes back with a completed charge slip for you to sign.
October 2015 is the date of the great liability shift. At that point, any merchant who is not prepared to accept an EMV credit card becomes liable for any fraud that could have been prevented by having a chip-enabled card reader. Whether that date will stick is anybody’s guess.
That also applies to most of the restaurants I frequent in Canada. One nice feature of many of those is that they will prompt you for what (if any) tip you want added either as a % of the bill or as a specific amount. I LOVE not having to think about what 15% (or 20% if I am in a good mood) of my bill works out to be!
Chip and pin has been in use around the world for a decade. Skimming/cloning fraud has dropped by 30-40% in those countries over the last few years. I can’t find stats but I suspect most of the remaining skimming fraud comes from magstripes and not chip cloning.
It hasn’t helped with online transactions of course, but it’s not designed to.
The technology is mature. It’s been proven in the real world for a decade. The bugs have all been ironed out, and it was successfully rolled out in many countries without problems. There is no reason to think the US should be any different.
Some US stores use them, some of those stores even make it mandatory, i.e. if you swipe with the chip and pin card, it will tell you you need to use the chip and pin feature. Sam’s Club makes it mandatory to use if you have it, several grocery stores allow you to go either way.
I was told that when I visited Europe, I’d need one–I didn’t really, but now that I have it, I do like it. Transactions do take a bit longer, but only about 10-15 seconds more.
FWIW, here is my experience. As far as I recall, virtually all retailers in Canada are set up for chip and pin. Given the number of tourists, they also accept swipe cards. I still do have one swipe card. It is a corporate card and they apparently have been slower to convert them. And in my experience, it is nearly instantaneous. At first it was slow, now the approval comes within about 55 seconds of entering the pin. The nicest thing about it is that the merchant (or waiter) never even gets to see your card. He enters the amount, you accept the amount. In a restaurant, you get to enter a tip, either % or $ amount, enter your pin, wait 5 seconds and it is done. I think we have had chip and pin cards for at least 5 years, maybe longer. I can still swipe my card in the US.
In the UK, especially in London, the scrotes (mostly from Eastern Europe) have raised skimming CCs to a fine art. They have a variety of methods, but they love Americans with their old tech mag stripes. Apparently it takes very little effort to clone these cards, and before you know it was stolen, there could be a dozen copies out there maxing out your credit limit.
Chip and Pin is not invulnerable; just a little harder to do.
We now have contactless cards which only need to be passed over the terminal to complete a transaction up to, I think, £20. My bank, among others, is pioneering cash transfer between smartphones. This must surely be the prelude to the demise of cheques, as one major objection was the problem of paying tradesmen etc. In the longer term, it must also presage the end of cash altogether, thus giving governments even greater control.
In the US we also have contactless credit cards that use a different technology. Unfortunately they have been a flop. Although some big chains (like McDonalds and Walgreens) have equipped their stores with contactless card readers, in general neither merchants nor consumers have seen a compelling reason to use them. They are not easier or faster to use than swiping a magnetic strip and they are a lot less reliable. A 2013 Federal Reserve Bank study indicated that only 74 out of each 100,000 transactions were performed with contactless cards.
While many issuers experimented with contactless cards, the largest issuer in the United States, Chase Bank, really went all-in trying to support the technology. However, last May even Chase Bank announced that they were abandoning it and would be replacing all cards with Chip & Signature cards not equipped for contactless use.
Target alone has 1795 stores in the US. Figure 30 checkouts per store (remember they have them in the pharmacy & at returns desk also) is almost 54,000 readers needed. Even at a huge volume discount from Joey P’s cost, it’s still going to be $15 - $20 million for Target alone!
Now add in Wal-mart’s, & Macy’s & the other dept stores, & all of the grocery stores, & all of the other stores in the various strip-malls, & restaurants; then also add the mom-&-pop stores & all of the flea market merchants who use Square. I’d be surprised if it’s less than $1 billion.