Why do so many credit card chip readers still not work?

Factual Questions
101

Credit doesn’t use a PIN, correct. We sort of half assed started the Chip and Pin thing and then dropped it, so it’s Debit and Pin or Chip and Sign and in nearly every single case, you can still run your debit card as a credit card as long as it has a Visa or MC logo on it. As for what happens if you attempt to run your credit card as a debit, I’m not sure, but I’d wager it would decline based on the PIN being wrong since you don’t know it. Most people, even in the US, actually do have a PIN for their credit card though, they can call and ask for it, it should have been issued when they started rolling out chipped cards. Anyways, as explained earlier, from the merchant, processor and bank’s point of view which button you push determines which networks the charge travels on and what fees happen along the way, even though it makes no difference to the cardholder.
Of course, there are plenty of people that can use one card as a credit card for charging and also a debit card for pulling money out of their checking account.
There are people that have a debit card and want/need use a PIN, since if you run it like a credit card, they don’t get points with their bank, but, OTOH, if you don’t sign for it, you don’t (I don’t think) get the protection that Visa/MC offers since you’re bypassing them.

As for why the machine can’t tell, I have to assume that that information (let’s say it’s strictly one or the other) isn’t encoded on the card. The machine only connects to the internet/processor after it collects all the data it needs.

Also, you mentioned upthread that in Canada the CC reader is integrated into the register. Is that how it always is, or just what you’re seeing? I mean, they’re available here, plenty of places have them, but smaller stores (like mine) don’t for all kinds of reasons. We just have standalone terminals and separate registers.
The credit (/debit) card system, when you really start to think/over think it is extremely complex and probably moreso than it needs to be. Even as a merchant, I do what I can to keep my rates as low as possible, but it’s not like I can call every week and complain that my ‘mid-qualified visa non-signature’ went up a half a percent. Hell, the drone that answered the phone probably doesn’t know what that is anymore than I do.

102

Let me put it this way: The credit/debit button does not affect the type of account that funds are drawn from or how they are charged to a customer’s account. It affects the choice of network used to transmit the transaction to the customer’s bank. If you are using a debit card and you press the “credit” button, the transaction will be transmitted via the Visa or MasterCard credit network to the customer’s bank. If you press the “debit” button it will be transmitted via a competing ATM card (“debit”) network.

Why should the customer give a flying fork what network is used or why is the customer even asked to make this choice? Well, it’s kind of like the American health care payment system: It makes absolutely no sense to outsiders and Americans don’t really understand it, but are used to it.

Visa and MasterCard would dearly love to force the merchants to just use their network and pay whatever they demand as a condition for accepting their cards. Merchants would like to choose the network that costs them the least. So we have the stalemate condition where the consumer, who is totally ignorant of the issues, is asked to make the choice.

Visa has a credit card network, they also have a debit card network called Cirrus. MasterCard has a credit card network, they also have a debit card network called Maestro. If a debit card has the Visa logo on it, transactions can be routed via the Visa credit card network. If the issuing bank has signed up for Cirrus, it can be routed via the Cirrus network also. The issuing bank can also sign up with other competing debit card networks, such as Pulse, NYCE, and Star. So if a consumer uses a Visa debit card and presses the “credit” button, the transaction is routed via the Visa credit network. If the consumer presses the “debit” button, it can be routed via any other network that the card issuer and the merchant’s processor mutually accept.

Until 2011, debit payments processed via the debit card networks cost the merchants significantly less than debit payments processed via credit card networks. So merchants tried to push consumers to choose debit. On the other hand, card issuing banks tried to push consumers to choose credit because they collected larger fees from the merchants. Some banks charged consumers a fee if they used “debit.” Some banks paid customers higher interest rates if they made a certain number of “credit” debit card purchases each month. Visa and MasterCard made rules that prohibited merchants from trying to discourage “credit” purchases. Merchants filed anti-trust lawsuits in response.

Then the big game-changer came in the 2010 Dodd–Frank Wall Street Reform and Consumer Protection Act. In particular, in the section referred to as The Durbin Amendment.

The Durbin Amendment divided debit cards into two classes: exempt and non-exempt. All debit cards issued by financial institutions with $10 billion or less in assets are exempt. All debit cards issued by financial institutions with more than $10 billion in assets are non-exempt. The Durbin Amendment ordered the Federal Reserve Board to set a maximum interchange rate for non-exempt debit cards.

Before we go any further the word “interchange” is frequently misused. It is the fee that the merchant’s processor’s bank (called the “acquirer”) pays to the network for processing a charge. It is NOT the fee that the merchant pays. The acquirer and the processor want to make money, so they charge the merchant more than the interchange rate. But since neither the acquirer nor the processor want to lose money, the interchange rate serves as a sort of a floor for the merchant’s fees.

The Federal Reserve set the maximum interchange rate to 22 cents per transaction plus 0.05% of the amount of the transaction for non-exempt debit cards. There is no cap for exempt debit cards. This cap applies whether you choose “credit” or “debit” at the terminal.

This caused a radical shift in pricing for debit card transactions. All of the networks adopted a two-tier pricing system: Non-exempt cards were priced at the maximum allowed by law. Exempt card fees were raised to roughly the same as Visa and MasterCard charge for credit cards. And the “small ticket” fee categories (the reduced fees charged on small transactions) were eliminated. (The change to small ticket fees was not mandated by law, but was just a little “fork you” to the merchants that lobbied for the law.)

It used to be that “debit” debit card transactions cost the merchants less, but now you basically have to check transaction by transaction to determine which costs less. Many small merchants, however, sign up with processors that have “blended rates.” That means the merchant pays fees unrelated to the actual interchange rate.

Oh, and one more thing that the Durbin Amendment did: It required that the issuing banks all allow debit card POS transactions to be processed through two or more unrelated networks.

So, there, wasn’t that simple?

And, yes, I have completely ignored American Express and Discover.

103

Ai-yi-yi! This all sounds very complicated! The comparison to US health care seems apt… Thanks for the explanations, everyone.

It sounds to me like the big difference between the Canadian and the US systems is that our Big Five banks are big enough to set up their own debit card system, rather than piggybacking onto the credit cards, and the smaller banks and credit unions then would rely on that system (see Muffin’s post). There’s no linkage between the credit cards and the debit cards: if I use debit, it comes straight out of my bank account, and if I use credit, it goes to my monthly credit card bill. That may have something to do with why I have to say “debit or credit” - the debit card is a separate card from my credit card, so probably triggers separate process, because the two are not linked. My debit card, for instance, doesn’t have a Visa/MC logo on it, just the logo of my bank.

(In fact, now that I think about it, when the POS system first came out, with card swipes, it was the banks themselves that were providing the readers. Some had the Royal logo, some had TD, etc. So I think the Big Five were heavily involved in creating the debit system, probably in tandem with the credit card companies.)

Joey P, as a result of this thread, I’ve actually been paying closer attention to how the POS system works. In big stores like Safeway, and in high traffic places like gas stations and Tim Hortons, the card readers are typically integrated to the till. The readers are usually mounted on stands facing the customer, and when I show my card, the cashier enters it on the till, without ever touching the reader. I use the chip and pin on the reader, and the transaction normally goes through. The cashier normally can’t use the fixed reader, because it’s facing away from the cashier and towards the customer.

There are some other stores, usually smaller, where the cashier does have to use the card reader to enter the data, not the till. Those readers are usually on cords and the cashier and the customer hand them back and forth.

I think the readers on stands, integrated with the till, are becoming the standard.

I don’t understand why you use chip and pin for debit, but chip and signature for credit? :confused:

104

It’s the same here. Debit cards are not credit cards, even if your debit card has a Visa/Mastercard logo and you push the “credit” button. It’s still a debit card and comes straight out of your bank account. It just gets there differently.

We’ve always used PINs for debit cards when run as debit cards. It was swipe-and-pin before. A chip debit card processed as as a credit card will be signed as if it was a credit card, though.

105

Actually, it seems that at least one bank has combined them in one card. In that case, the debit/credit choice does actually route the charge to different accounts.

I can’t find a whole lot of current info about the card, though, so maybe it was a flop.

106

That’s the general rule in Canada, but there is an exception: Visa Debit, which runs through the Visa processing system but takes the funds from your bank account, which is sometimes useful for on-line, telephone, mail and recurring transactions, if you want to use debit rather than Visa but the vendor is set up for processing Visa cards and is not set up for processing Canadian debit cards. Although they give you a physical card, it is really just a piece of plastic shaped like a card that has a card number and a CW2, but no embossment for imprinting, no EM chip, no magnetic strip, and no RFID. It’s an odd duck.

I’m looking forward to the day that we can just use brain waves to make transactions rather that have to carry aboat a bucket full of cards.

107

Those are excellent explanations starting with Lord Feldon’s post snipped above all the way down to just above here.

Reference just the snip above, there was another gigantic factor at the time. Credit cards were prestigious; it meant you were “rich” enough to be credit-worthy. Debit cards were seen as the poor person’s alternative for the non-creditworthy proles.

So as a pure marketing move, Visa decided to offer a branded debit card. So you could keep the truth a secret from the merchant. Only you would know that it’s a lowly debit card rather than an exalted credit card. And all those proles could get an aspirational good that didn’t increase Visa’s risk one iota. While getting themselves a percentage of all those low-end transactions by low-end people. Their goal was for these branded debit cards to simply replace cash so they’d get a piece of 100% of retail trade.
As with so much of commerce in the US, it’s an illogical hodge-podge. But if you ever find some part especially illogical, look directly to the marketing department for the reason. Bastards.

108

In the 2003 settlement to the anti-trust case, one of the things that VISA USA agreed to was that all non-credit cards issued beginning in 2004 would clearly and conspicuously be labeled with the words “CHECK CARD.” In later negotiations between the parties, they agreed to change that to the word “DEBIT.” MasterCard International adopted the same rule in 2004.

So now your debit card screams to every waiter and minimum-wage cashier “I am not a credit card.” But that didn’t bother consumers, really. Debit card usage has exploded since 2004 and now exceeds credit card usage in the United States.

109

[QUOTE=JcWoman]
Related and/or tangential but upthread someone said that this CnP movement in the USA moves the responsibility for fraud prevention to the retailer.
[/QUOTE]

Actually, it shifts the liability (and by extension, the keen interest in fraud prevention) to the least-compliant party in the transaction. Generally, that will be whoever hasn’t implemented EMV card processing.

I have a stripe-only ATM card. If fraud happens to it, and the sale was made via a properly configured and operational EMV terminal, my bank is liable, not the merchant or their processor.

Going back the the OP and their tortured payment process… Your POS is truly a POS! You probably could have ditched them and gone with Square and been money ahead, both in the cost of the payment device and in not losing sales or tips. The boyfriend’s a barber/cosmetologist and he’s got Square’s EMV reader on a tip-aware merchant account. He plugs in the sale amount, hands the iPad to the customer, and it even does the 15/18/20% precalculated tip options and a line to enter something different. For all I know, it’s the same package that my dog groomer uses.