Why Aren’t We Smart About “Smart” Cards in U.S.?

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You probably got credit card replacements in the mail recently.

To combat data and identity theft, the payments industry (merchants and card providers) were supposed to change over to “smart” chip cards by October 1. Many have not.

The new cards have an embedded chip that replaces the outdated magnetic strip used to process a sale by credit card. But it appears the new cards just aren’t a big deal. Why?

  1. Consumers don’t understand how to use them – you don’t just slide your card like before, but insert it so the terminal reads the chip. A merchant can walk you through a sale.
  2. Small merchants aren’t ready – they aren’t using the new point-of-sale terminals because it’s expensive.
  3. Card providers went halfway – they rolled out chip-and-signature cards and not the chip-and-PIN cards used in Europe and other countries. The American Banker estimates only 70% of cards have chips, and most are chip-and-sig.
  4. New ways to pay – electronic wallets, mobile payments, direct debits – are becoming popular alternatives for consumers who don’t want to risk identity theft.
  5. Chip cards protect on-site purchases, not on-line shopping. E-commerce (and other “card not present”) fraud is a larger problem. In fact, industry experts estimate “card not present” fraud is a $3-billion problem that’s expected to double by 2018.

What’s the point?

Consumers: It’s more difficult to steal the data stored in the chip, thereby making chip cards more fraud resistant and hopefully deterring some identity theft. Learn to use the new cards to protect yourself!

Merchants: If credit card fraud happens at your business and the card provider uses the chip technology and you do not, you must cover the cost of the fraud. Are you willing to risk it?

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