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What the Conversion to Chip Credit Cards Means for You

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It was in 2012 when credit card giants Visa ( V ) and MasterCard ( MA ) agreed that on today's date, October 1, 2015, every retailer or merchant in the United States would have to have new payment terminals that would accept chip-and-PIN credit and debit cards.

Despite the deadline, many American consumers have yet to receive their new chip-embedded card, which, in turn, has led a number of retailers to not upgrade payments terminals that accept chip cards. According to a report by Computerworld, more than half of all consumers have not gotten a replacement card, and an August survey of just over 5,000 people revealed that 56% were not aware of what a chip card was.

How, then, after three years, did more than half of the American consumer population learn nothing of a landmark switch in card payment methods?

Chip-embedded credit and debit cards are not new. Developed back in 1994, these types of cards became commonplace during the 2000s in Europe, Australia, and many other countries including Brazil. Here's how the EMV (an acronym for EuroPay, MasterCard, and Visa, the three primary card networks) standard, which is what it's commonly referred to as, works: insert the chip-end of the card into the bottom slot of the terminal, and leave it there while you follow the instructions prompted by the machine; only remove the card once the terminal tells you to.

Think of this process working like a mini-computer, where the card creates a unique code for each transaction when inserted into the terminal. Consumers no longer need to swipe their cards quickly, which is what most American consumers are used to; this method sends the card details to the retailer's point-of-sale (POS) system. (Ideally, the EMV standard would require consumers to enter a PIN associated with the credit or debit card being used, but this could take years to implement, and right now, you only need a signature to verify your card).

Why the Delay is Unsurprising

Three years may seem like an adequate amount of time to completely switch over to the EMV standard, but the logistical issue of having to replace the 1.2 billion credit and debit cards Americans own was apparently too much, according to Carolyn Balfany, the Senior Vice President of product delivery for MasterCard, in an interview with CBS News .

"Banks are working to replace them," she continued. "In the beginning, they were working on international travelers because those were the consumers who were challenged because they were traveling overseas." Travelers are more likely to need chip-embedded cards because of their commonality overseas.

Banks are also sending out replacements for other consumers in a mixture of ways, varying from a "mass reissuance" to replacing the cards upon their expiration dates; consumers are more than welcome to call their bank to request a chip card rather than wait for one. Balfany estimates that roughly two-thirds of credit and debit cards will be replaced by the end of 2015.

Chip Card Effects

Switching to a chip card payment system will take many adjustments for both consumers and merchants. It will definitely add more seconds to the checkout process, and while that may seem like nothing, it has the potential to spur a loss in in-store sales as some customers may choose to leave long cash register lines or solely shop online.

There will also be a shift in liability after October 1. Fraud liability will now fall exclusively on the shoulders of the party that has not upgraded its payment method, either credit card or payment terminal. It's also important to note that consumers will not face a fine if they do not have a chip-embedded card by today.

Bottom Line

Even though today marks the deadline for switching over to chip-embedded credit and debit cards as well as chip-friendly payment terminals, it won't seem like anything is different. Consumers will still be able to use the swipe and sign method because many retailers have not upgraded to new terminals, all due to the fact that over half of all American consumers have yet to receive new chip cards.

Don't expect the EMV standard to take over completely all at once. It will most likely be a long and arduous process that spans a good number of years.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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