Chip cards slow to market after deadline

In most billfolds today is a mix of credit cards with magnetic strips and those with electronic chips. What’s in your wallet stems from a major transition in the credit card industry that promises more secure transactions.

But the move for banks and retailers to chip cards, aka EMV cards for the Europay, MasterCard and Visa companies leading the charge, is unfolding more like a book series than a two-hour movie.

With a long-anticipated Oct. 1 deadline now months past, credit card industry analystMatt Schulz said about half of banks have begun issuing the new cards and around one-third of retailers have made the leap to EMV point-of-sale readers.

The deadline had no legislative teeth. It was a recommendation of the major credit card companies. One deterrent to adoption is cost. The average chip card costs banks $3.50, according to CreditCards.com.

“We are issuing cards every week in fairly large batches of 10,000 to 15,000 cards,” said Carl Bradbury, executive vice president and director of consumer card products for Kansas City-based Commerce Bank (Nasdaq: CBSH).

He said the bank is spending less than $3.50 a card on the conversion, and now Bradbury said more than half of Commerce’s customers have chip cards.

Two of the largest Springfield-based banks have yet to invest in the new technology.

Officials at Guaranty Bank (Nasdaq: GFED) expect to begin rollout

of new chip cards to its 12,000 customers by April, while Great Southern Bank (Nasdaq: GSBC) plans a calculated two-year rollout beginning midyear.

Guaranty Bank’s new cards will cost roughly twice as much to produce as the old ones.

“We’re partnering with a vendor to acquire the plastic and get the chip programmed on it,” Vice President of Product Solutions Will Cologna said, declining to name the vendor citing a nondisclosure agreement.

Tough on fraud
Schulz, a senior analyst for CreditCards.com, said the key reason for the switch is to protect credit card information.

“As of Oct. 1, if a retailer does not have the capability of accepting these chip cards, they can find themselves being liable for credit card fraud that happens in their store,” he said, adding banks are generally liable if a retailer has chip-card reading equipment in place.

With chip cards, Schulz said each transaction gets a unique transaction code, so that not all account information is shared for every purchase – which is what is transferred with magnetic strips.

“If the bad guy steals a unique transaction code to make another purchase, it won’t work. It’s basically like stealing an expired password,” he said. “With retailers having less usable information, the hope is they are less of a target in these breaches.”

According to CreditCards.com, a marketplace for lending partners of the Bankrate Online Network, about one in four debit cards were upgraded by the end of the year, and around 670,000 retailers have point-of-sale chip-card equipment in place.

Commerce was ahead of the game, starting the transition three years ago with high net-worth clients who are most likely to travel overseas, where the chip cards are more common.

“It really is all about security,” Bradbury said, adding it should help over time reduce credit card fraud by 40 percent.

He declined to disclose how much Commerce Bank has budgeted to complete the transition, but the EMV cards could cost up to six times more than the traditional magnetic strip variety, which had a base cost of 25 cents per card.  He expects to finish the transition in the second quarter.

Retail response
At payment stations, the new EMV cards can be read by the strip or by the chip.

“We’ve had very little concern from customers about where to use the cards or how to use the cards. We tell them to go in and swipe the card and if the teller tells them to insert the card instead, then do that. Otherwise, just swipe it like always,” Bradbury said.

Schulz said the magnetic strips won’t be phased out for years.

For retailers, the point-of-sale terminals cost $500 to $1,000, and most were in no hurry to transition just before the holiday shopping season – particularly mom-and-pop shops, which are less likely targets for criminals.

For big retailers, it’s a different story.

Bentonville, Ark.-based retail giant Wal-Mart Stores Inc. (NYSE: WMT) made its full transition 11 months ahead of schedule, said spokesman Randy Hargrove.

“We’ve had them in all of our Wal-Mart stores and Sam’s Clubs in the U.S. for over a year. Those were actually activated Nov. 1, 2014,” Hargrove said. “We began installing the readers in our stores about nine years ago; they just weren’t activated. What we did before Nov. 1, 2014, was we got the software transition ready.”

Hargrove declined to disclose how much the transition cost the company.

According to an Oct. 1-7 survey by TD Bank, 41 percent of a sampling of 500 small businesses have installed EMV chip-enabled payment terminals. Also, 40 percent of small-business owners reported plans to switch to the new technology soon, but indicated they have concerns about making the conversion.

“It is a significant investment of money and resources,” Bradbury said.