One year after the U.S. reached a milestone in its switch to credit cards that require a dip instead of a swipe, the ability to use such cards has dramatically increased.
But potential headaches loom heading into the holiday season, with some shoppers complaining that checking out with a chip takes too long and stores continuing to encounter delays getting chip-reading terminals up and running.
"This whole transition has been a challenge for merchants and for our customers," says Mallory Duncan, general counsel for the National Retail Federation. "It’s not one we wanted. It’s extraordinarily expensive. It’s cumbersome, and worst of all it doesn’t really protect our customers to the extent we want."
Chip-enabled — or EMV, which stands for Europay, MasterCard and Visa — cards are more secure than those with only a magnetic stripe because they generate a unique code for every transaction, making them more difficult to counterfeit. To expedite the switch, a liability shift occurred last Oct. 1 so that U.S. merchants are now held liable for fraudulent transactions made with counterfeit cards if they did not have a chip-reading terminal.
Since then, the pace of adoption has dramatically accelerated. As of July, 88% of MasterCard consumer credit cards in the U.S. were chip-enabled, a 105% uptick since October, while 2 million merchant locations were able to handle EMV transactions.
Meanwhile, as of August, there were over 363 million chip-enabled Visa cards in the U.S., a 156% bump over that month the previous year. Among U.S. storefronts, 32% are now able to process chip transactions, and more than 75% of those are supermarkets, neighborhood drugstores and other small and midsize businesses, Visa says.
"We’re on pace with what we’ve seen in other countries," says Stephanie Ericksen, vice president of risk and authentication products for Visa, who noted that Australia, Brazil and Canada each took roughly two years to get to where 60% of transactions involved a chip card used in a chip terminal. "We’re about halfway to that point. And with this being a more complex environment in terms of the number of entities in the payment system ... we’re doing really well."
Fraud is also down. According to Visa, counterfeit fraud at merchants able to process chip transactions dipped 47% in May, compared with that same month in 2015. MasterCard found that the costs of fraud for U.S. merchants that were in the final stages or had fully implemented EMV technology dropped 54% in April vs. that month the year before. Such costs rose 77% among large businesses that had not shifted to chip or were in the early stages of the transition.
“EMV is doing exactly what it’s supposed to do," Chiro Aikat, MasterCard’s senior vice president of product delivery-EMV said of the drop in fraud.
But a shift that the NRF says is costing retailers $30 billion to $35 billion to implement also has its critics. An NRF study released in August found that 76% of retailers said the new chip technology was one of their biggest payment challenges of the past year.
Retail advocates complain that the better, more secure option would have been a switch to chip cards that require a PIN rather than simply a signature.
With a PIN, "If someone steals your card out of your gym locker or purse and goes on a spending spree ... the card would be useless," says Duncan. "With a chip-and-signature card, the thief just goes and signs your name."
Among those who participated in the NRF’s survey, 86% had already put equipment in place or planned to be ready to process EMV transactions by the end of this year. But Duncan says many merchants have been delayed in actually using the terminals because there is a backlog in getting the equipment tested and certified.
MasterCard and Visa have each taken steps to streamline the process, but, Duncan says, all major card brands, including Discover and American Express, have to sign off on a terminal, and "there’s a massive backlog ... in the pipeline."
And the backlog may not just be behind the scenes. Some shoppers fear logjams at a stores' checkouts as well.
A September survey by the payment technology company Cayan, found that 71% of consumers say that they are definitely or somewhat likely to make their purchases online this holiday season instead of at a brick-and-mortar store because of their perception that chip cards will lead to longer wait times. Additionally, 83% of shoppers polled were unsure whether retailers accept chip cards or not.
"The clear shopper frustration with chip card technology is going to create significant hurdles for retailers this holiday season," Cayan CEO and co-founder Henry Helgeson said in a statement. "The real answer is working to subtract time from the transaction time, something processors around the country are working hard right now to do."
Indeed, MasterCard has a product dubbed M/Chip Fast that has reduced the time a chip card is inserted in a terminal from roughly seven seconds to less than 2.5 seconds. Visa's Quick Chip similarly pares down a transaction's time, and some individual retailers are taking additional steps on their own to quicken the overall checkout process.
Still, "like with any other new technology or change, retailers are a little more apprehensive about implementing new technology in the peak season," MasterCard’s Aikat says of how much EMV adoption may occur this holiday season. "I think we’ll see more of a stagnant implementation in November and December, picking back up into January of next year."