Marczyk Fine Foods was gung ho to start taking chip cards on Oct. 1, 2015, the day Visa, Mastercard and other credit issuers stopped covering payments made with fake credit cards. But while the grocer’s new chip-card readers had arrived, the company that processed its credit-card transactions wasn’t ready.
So, Marczyk waited and waited until it could wait no more. It switched companies and about a month ago was finally able to turn on chip-card readers at its two central Denver stores.
“You had customers sticking their card into the hole and it wasn’t working. It was making us look low rent by having a sign that said the chip reader wasn’t working,” Marczyk’s business manager Joe Prince said. “We decided we had to switch our credit card processor to get compliant.”
Marczyk’s is in the minority. A year after credit-card issuers shifted liability for counterfeit card purchases to merchants, only about 30 percent of U.S. merchants are using chip-card readers. Chip-card-carrying consumers are now at 64 percent for Visa cards and 88 percent for Mastercard.
Merchant adoption was expected to take a few years because of the high cost to upgrade terminals and train employees, said Michael Moeser, Javelin Strategy & Research’s director of payments practice. But consumers got their chip cards more quickly than expected — banks had realized that if they didn’t send out new cards, they would be liable for any fraudulent charges.
“All of a sudden, the tables turned,” Moeser said. “The issuers realized they have the opportunity to share the burden. And anywhere they can shave costs, this is clearly one of them.”
The liability shift came about as a way to curb losses to fake credit cards — an estimated $4.5 billion this year, according to The Aite Group, a financial researcher. Results so far are positive. Visa’s stats showed a 47 percent drop in counterfeit fraud dollars during May, compared with a year earlier.
Mastercard reported that such fraud declined 54 percent at stores with working chip-card readers or integrating the technology. Mastercard merchants who hadn’t started migrating to chip cards saw counterfeit fraud costs increase 77 percent year over year — a sign that thieves are targeting stores that put tape over chip-card readers or have little signs that say “No chip yet.”
Chip cards, however, don’t protect against online fraud. And if your chip card is stolen, it can be used — unless you report it stolen.
Because banks prioritized chip cards, two-thirds to three-quarters of consumers will have chip cards by the end of the year, Moeser said.
Retailers, meanwhile, considered last October as the starting point, not the deadline, he said.
“I think the retailers were caught flat-footed,” he said. “The fast pace of issuance has caught them off guard.”
A Visa spokesman considers the rate good progress, compared with the speed at which other countries have adopted chip cards, also called EMV for Europay, Mastercard and Visa. Plus, in the U.S., many merchants are simultaneously rolling out mobile and contactless payments so shoppers don’t need to carry a credit card at all.
“It does take two to three years based on the experience we’ve seen in Australia, Brazil and Canada,” said Stephanie Ericksen, Visa’s vice president of risk and authentication products. “We’re at 37 percent of our volume (of in-store payments). We think that’s really good progress.”
While Visa’s statistics show that 64 percent of its U.S. cards now have a chip, that counts cards that are rarely used and still need to be upgraded. Of actual Visa-card transactions, 93 percent of the volume is through chip cards, she said. And one feature Visa is rolling out is faster payments to speed up a chip-card purchase to 2.5 seconds, compared with some of the slowest rates of “between 12 to 18 seconds,” Ericksen said.
But while the majority of merchants haven’t upgraded, many in critical businesses have made the switch. Electronics stores, where a thief could quickly charge thousands of dollars to a card, topped the list with 78 percent of merchants now accepting chip cards, Visa reported. Drugstores and pharmacies were second, at 61 percent. And food and grocery merchants — where it’s easy to rack up gift-card purchases — were at 49 percent.
More merchants are coming online every day. Visa points to an Aite report that says 84 percent of nonchip merchants do plan to upgrade. But 2017 is expected to be another year of great change. Next Oct. 1, gas stations and ATMs will need chip-card readers as counterfeit-card liability shift begins for those owners.
Moeser predicts gas stations will be ready.
“Skimming is an issue at gas stations. There’s a lot of fraud that occurs and is largely being borne by issuers,” Moeser said. “You can bet that when Oct. 1 comes around, they will be ready.”
