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Transition to chip-embedded credit cards is a bumpy one

By Julio Ojeda-Zapata, Pioneer Press, St. Paul, Minn. on

Published in Senior Living Features

At Hudson Bagel & Coffee Co. in Hudson, Wis., some things will never change.

Its 18 varieties of bagels are still baked fresh daily. It still fires up the fireplace to keep its customers warm during the cold months. And management will object, in a friendly but firm way, if you compare the shop to a certain national bagel chain that has a name starting with "B."

But Hudson Bagel recently underwent one major change, and it is related to card payments. Credit cards at the bagel store are now being "dipped," in many cases, instead of swiped.

The store has joined the brave new world of chip-card processing.

"Dipping" refers to using credit cards and debit cards that have metal security chips embedded in them. They are inserted into card readers like the one available at Hudson Bagel and other merchants locally and around the country.

The nationwide switch-over to this new payment method was supposed to happen this month, but is actually expected to take years. Even so, it is the new normal for an increasing percentage of average consumers.

More and more credit cards and debit cards have the chips, while also still incorporating the traditional magnetic strips used for traditional swiping.

The United States is in the midst of a grand migration from cards that are swiped the old-fashioned way -- a system that has been fraught with data security issues -- to the newer cards that are dipped into card slots for more-secure payment processing.

This country is a laggard. Chip cards have been in use abroad for a decade or more. What's more, some experts believe the United States has set up a chip-card system in a manner inferior to how it is deployed elsewhere. Still, all agree this is an improvement.

SLOW TO ADOPT

Chip-card readers -- which harness a technology dubbed EMV, for EuroPay, MasterCard and Visa -- are popping up at merchants everywhere.

Minneapolis-based Target has had them in its stores for a couple of months. That was an essential move for the retail chain, which suffered a catastrophic security breach in 2013. The retailer is switching its branded RedCard store credit and debit cards over to chips, too.

"We are rolling out now and will continue to do so over the next several months," spokesman Eddie Baeb said.

Richfield-based Best Buy is in the midst of firing up its chip-card readers in its retail stores. About 1,400 locations are due to have operational readers this month.

Meanwhile, "our co-branded credit card is currently transitioning from Best Buy spokesman Jeffrey Shelman said. "Those cards will be chip-enabled."

Chip-card readers are also becoming commonplace among small businesses, which now account for about half of Visa's chip-card payment volume, according to that credit-card company. Others are expected to fall in line over the next few years.

This is in part because the credit-card industry set a non-binding Nov. 1 deadline for businesses to switch over. After that cutoff, a business -- not a credit-card issuer -- is liable for any fraud if the transaction is made using the less-secure technology.

This pressure is expected to compel merchants into modernizing payment systems, if they have not done so already.

Already, more than 314,000 U.S. merchant locations have set up to take chip-card payments, which represents a 470-percent rise over the previous year, Visa said.

Still, only about 5 to 10 percent of retailers are fully ready to take EMV cards, according to CreditCards.com. Although EMV readers are now widely deployed, they are not operational in many cases.

"This is the biggest change in decades in how credit cards are used in America, so we shouldn't be surprised that things are moving slowly," said Matt Schulz, CreditCard.com's senior industry analyst.

"One thing that won't change, however, is consumer liability," Schulz added. "If you report bogus charges promptly, you likely won't be out any money."

SLOW TO PROCESS

Hudson Bagel owner Rick Weber is glad he upgraded, though it has not been without problems. Weber does appreciate the added security.

With a chip-card transaction, the card number isn't transmitted to the merchant, as it is through the magnetic stripe. A code or "token" unique to the transaction is zapped over instead. It is intelligible to the credit-card issuer on the back end, so the transaction can be approved, but worthless to anyone who intercepts it with nefarious intent.

But Weber said the new card-processing system is clunky and pokey, partly because a card isn't quickly swiped but inserted into a slot and left there for what seems like an eternity for people on the go.

"When you swipe a card, it takes 10 seconds," Weber said. "Chip cards take 45 seconds. Add up those 45 seconds 300 times. It is just one more thing that will have an impact on my business."

U.S. cardholders, meanwhile, are switching over to chip cards by the millions as their card issuers distribute the upgraded slabs en masse. Visa has issued more than 150 million chip cards, a rise of over 655 percent in the last year alone.

Still, 60 percent U.S. credit-card users still don't have the cards, according to CreditCards.com.

Some consumers, however, have been using chip cards for years.

Minneapolis native RedLin Murphy got her first chip card about 15 years ago and has been using these with some of her accounts, where she can, ever since. Over the past year and a half, she said, more and more of her credit and debit cards got the chips. Now, almost all of them have chips.

This is important when going abroad, she noted, because merchants in Europe and elsewhere often have little patience for swipe-type cards wielded by Americans.

But, "the American version of the EMV technology is a compromise," said Murphy, a technology-risk specialist now residing in Oregon.

TECHNICAL DEBATE

Chip-card users in other countries usually tap in a PIN after they dip their cards. But in the United States, users of credit cards with chips are scribbling their signatures on a screen as they always have.

 

"The EMV chip is the most secure with a PIN and not a signature," Murphy said. This is partly because cashiers in stores rarely verify signatures.

The National Retail Federation agrees that the chip-and-signature approach, though safer than swiping, is a half-step and less secure than the chip-and-pin approach.

"Retailers are determined to protect their customers," said NRF senior vice president and general counsel Mallory Duncan in a statement.

"That's why we are pushing the banks to use all of the security the new cards are capable of providing, not just half," Duncan said. "They shouldn't lock the front door but leave the back door wide open."

But a case can be made for signatures in place of PINs for chip-card activity in this country, said Nic Peterson, card-services director at St. Paul-based Affinity Plus Credit Union.

Signatures represent a "more seamless transition" for U.S. credit card users who aren't accustomed to using PINs with the multiple cards they each carry, Peterson said. And banking-industry people like him believe the security is more than adequate.

Affinity has been mass-issuing Visa credit cards, with 56,000 sent out in July alone. In August and September, it sent 121,000 debit cards with chips.

Minneapolis-based U.S. Bank, Minnesota's second-largest by deposits, has been issuing chip cards since 2011, initially with the credit cards most used by travelers, and has lately accelerated deployment of chip-equipped debit cards. Debit cards commonly use PINs.

It agrees that the chip-and-signature approach is the best way to go.

"The PIN on a credit card doesn't add a lot of value," said Dominic Venturo, the U.S. Bank's chief innovation officer. "It just adds complexity. The average consumer carries more than four cards on the credit side. If you need to have PINs for everything, folks will do the simple thing and reuse them," which is a security risk.

Yet industry experts expect this country to eventually migrate over to a chip-and-PIN system for all cards.

Apple Valley-based Wings Financial Credit Union has been issuing chip cards since 2012, partly due to its historic role as a banking institution for Northwest Airlines employees who traveled abroad.

"We are getting a lot of interest in and request for the chip cards with the media running lots of stories about this, and there's a lot of information out there," said Michael Sahr, Wings Financial vice president of payment systems.

But "until all merchants accept chip cards, those mag stripes will continue to be used," Sahr noted. "How long is anyone's guess. I would guess 2018 before we hit that critical mass."

MIXED EXPERIENCES

Consumers, meanwhile, are having decidedly mixed experiences with chip-card payments.

The problem many have found: Big-box retailers have installed chip-card readers, but in some cases they are not yet using them.

"This weekend I was at Costco and they had taped over the slot that reads the chip and they ask customers to swipe," said Robb Mitchell of St. Paul.

"Walgreens has the chip readers also but discourage use by its customers," Mitchell has also discovered. "One of the women at the cashier checkout explained to me it never works properly and it's better to swipe the card's magnetic stripe."

Marcia Roepke of St. Paul said she discovered disconnected chip readers at Trader Joe's and Ikea.

Missy Berggren of Maple Grove never knows what she will find.

"I had a handful of times when the card would not work when I swiped and the cashier said, 'Oh, you have chip, you need to put it in from the bottom,' and it worked," Berggren said.

But in other places, she tried putting the card in the chip reader "and it wouldn't register, and the cashiers were like, 'Oh, that part's not working yet, just try swiping.' So, generally speaking, I never know which ones will work and which ones won't."

Berggren also is a bit paranoid about the new "dipping" routine.

"Entering the card through the chip reader is a bit strange in that you have to leave it there, maybe 4 or 5 seconds, for it to register," she said. "This feels weird in that the card is leaving your hand and there's a chance you could leave it behind, rather than one movement and back in my wallet."

Consumer clumsiness and uncertainty about how to use the chip-card readers could create register congestion during the frantic holiday season, said Christopher Lower of the Sterling Cross Group public-relations agency, which often represents clients in the restaurant and hospitality industry.

"Consumers aren't going to be used to the extra steps at the register, and this will slow lines down," Lower said.

But some users have a deep appreciation for the added security.

Lisa Braun Dubbels of Minneapolis has suffered three debit-card breaches in the past few years, including the Target breach, so she welcomes chip payments in this country. She previously lived in Canada, so she already knows the drill.

"I'd be more comfortable if Target was chip and PIN, not chip and sign, but that's just me being wary," she said.

Find Julio Ojeda-Zapata at ojezap.com.

(c)2015 the Pioneer Press (St. Paul, Minn.)

Visit the Pioneer Press (St. Paul, Minn.) at www.twincities.com

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(c) Pioneer Press, St. Paul, Minn.

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