Merchants slow to convert to chip technology

BOOSTING SECURITY: William K. Wray, executive vice president and chief risk officer at The Washington Trust Co., displays the new chip technology on credit and debit cards. / PBN PHOTO/MICHAEL SALERNO
BOOSTING SECURITY: William K. Wray, executive vice president and chief risk officer at The Washington Trust Co., displays the new chip technology on credit and debit cards. / PBN PHOTO/MICHAEL SALERNO

Does your credit card or debit card have a new chip in it yet?

For many customers of Rhode Island-based financial institutions, the answer is likely, “yes.” But some card users might still be without the technology – known as EMV – and even more might only be able to swipe at point-of-sale terminals in retail shops or coffee shops.

The reason for this, according many financial institutions, is because banks are still working toward reissuing cards with the new technology, which rolled out nearly one year ago, and retailers are not upgrading to the new technology at the same pace as banks and credit unions.

“Generally, the industry is in a state of flux on this topic,” said William K. Wray, executive vice president and chief risk officer at The Washington Trust Co., based in Westerly.

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“Many retailers still have not switched due to cost and perceived inconvenience,” he added. “Many times their merchant processors have not put the right hardware and software in place.”

Cost is certainly one issue for the retailers, as it requires new terminals and software upgrades, but there are other factors at play with the whole industry moving toward becoming compliant, according to Mike Battagliese, senior vice president and head of credit, debit and emerging payments at Citizens Bank.

“There’s a backlog of business waiting for new terminals,” Battagliese said. “It’s going to take awhile to grow.”

And it’s not just the merchants. Rhode Island-based financial institutions are also issuing the new cards at different speeds.

Washington Trust says about half of its issued cards now have the technology. Citizens, based in Providence, says roughly 70 percent of its debit cards have chips, 100 percent of its small business and commercial credit cards have chips, and about 50 percent of its consumer credit cards carry the technology. Navigant Credit Union, based in Smithfield, says about 20 percent of its customers have the new technology but expects that number to grow more quickly beginning this month as it receives updated technology from a third-party vendor. Webster Bank, based in Connecticut, says 100 percent of its consumer debit cards, along with its consumer and businesses debit cards, have been reissued with the new technology.

The financial institutions are generally pleased with the new technology, because it makes point-of-sale transactions more secure and prevents against “skimmers,” a type of technology that allows thieves to steal credit card information directly off the terminals.

“From the bank’s perspective, there’s been a real strong reduction in counterfeit plastics during card-present transactions,” said John W. Weeks, senior vice president and director of payments and lending products at Webster.

But banks also like the technology because it shifts some of the liability of fraud away from them, specifically when retailers don’t have the new technology. That means if a consumer’s credit card information is stolen at a pizza shop terminal, and the consumer’s card had a chip, but the shop didn’t have a new terminal and technology, the pizza shop owner is liable in the event of fraud. On the other hand, if a card issuer hasn’t yet issued the new chip, but the pizza shop has the new terminal and technology, the liability stays with the financial institution.

The technology, which has been used in Europe for more than a decade, has been adopted faster by bigger merchants, including Wal-Mart Stores Inc. and Target Corp., because of the greater liability a large volume of customers represents. Target in 2013 reported one of the largest data-security breaches in U.S. history after information from about 70 million credit and debit cards was stolen.

But even the liability shift isn’t enough to convince some of the smaller retailers, according to Gail Cavanaugh, a Portsmouth-based consultant and life-insurance agent, who recently penned a book called, “The Retailers Guide to Merchant Services: From Storefront to Internet.”

“Smaller merchants are not converting to the chip technology and feel they have very little exposure to fraud compared to a major retailer,” she told Providence Business News. “However, when thieves discover this, the smaller merchant may become a target for fraud and identity theft.”

The new chip technology, albeit safer during point-of-sale transactions, doesn’t curb fraudulent activity online. Once EMV technology is fully rolled out, the industry’s next most obvious step toward increasing security lies in “tokenization,” which allows retailers to collect payment information without exploitable information, such as a person’s name.

“You’re going to see more of the token-based payments in the future,” said Ken L. Senus, senior vice president of information technology at Navigant. •

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