Chip Card Technology Adoption is Underwhelming in the US

Oct 27, 2015

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Many travel rewards cards already feature chip technology, allowing for more secure purchases, but that’s only half of the equation. As TPG Contributor Vikram Birring explains, most US merchants have yet to make the upgrade on their end, despite an important October 1 deadline. 

Arrival Plus and Sapphire Preferred are my go-to cards for foreign travel- now the Arrival Plus has the PIN edge
Passport, check. Chip credit cards, check.

October 1 was set to be a momentous day in the world of US financial transactions. On that date, the US would join the rest of the civilized world by wholly embracing EMV-compliant technology, aka chip card technology. In doing so, it would be improving credit card security and cutting down on fraud, as cards with magnetic stripes are stunningly easy to clone.

But the October 1 deadline has come and gone, and in reality it just represented the date when the liability for fraudulent transactions shifted to whichever party is the least EMV-compliant. In other words, merchants that don’t have chip card readers would be on the hook as of this month.

However, this threat evidently didn’t cause the ripple effect credit card issuers hoped for, as neither retailers nor consumers are anywhere close to complete conversion. According to a study by Strawhecker Group, only 27% of merchants are compliant with the new technology. Fiserv’s survey is even less optimistic, stating that only 5-10% of merchants are ready.

Why Aren’t We There Yet?

As to why the US hasn’t made the full transition yet, there are several factors. For one, there’s the cost of upgrading; merchants need to purchase chip card readers. This financial burden hits small businesses especially hard, and it doesn’t help that 49% of small business owners aren’t even aware of chip card technology, according to a Wells Fargo survey from July.

Consumers are no better, as a survey by ACI Worldwide found that 59% of cardholders haven’t received chip cards, and 67% haven’t received information from their bank about the potential benefits to making the switch. It’s worth noting that several top travel rewards cards have already adopted the technology, including the Starwood Preferred Guest Card from American ExpressChase Sapphire Preferred Card, Chase FreedomSouthwest Rapid Rewards Premier Credit Card, United MileagePlus Explorer Card and the Club Carlson Premier Rewards Visa Signature Card, among others. (The Chase Freedom is no longer open to new applicants)

More merchants need to upgrade to chip card readers. Image courtesy of Shutterstock.

However, the largest irony of all of this is, despite the fact that chip cards are finally being distributed in the United States, most still have an unnecessary security loophole: they require a signature instead of a PIN. Though theoretically a merchant could ask for identification when a credit card purchase is made in person, in practice this is rarely done — and signatures can be forged.

Much of Europe has been using the chip + PIN technology for decades, so it’s startling that credit card issuers decided to offer chip + signature technology instead of chip + PIN. Take the UK for example: There was a 75% reduction in credit card fraud in the four-year period after chip + PIN technology was adopted. Still, there’s hope that this is the first step in a bigger process, and that chip + PIN cards will be offered in the future at some point, once the chip card concept itself takes off.

Bottom Line

All that being said, even a chip + PIN card won’t prevent online fraud; chips have no impact on online purchases. But a reduction in fraud in a world where retailers have been hit by numerous breaches is a positive step forward nonetheless. Hopefully all parties will adopt 100% compliance sooner than later, so consumers can make more secure purchase and we can finally catch up to the rest of the world in credit card technology!

How many cards in your wallet have chip + PIN technology?

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