It’s Time for State of the Art Terminals: U.S. Lags On Secure Chip Cards and Payment Processing

We’re half there … but half may not be good enough. According to financial professionals at work on necessary conversions, a mere 50 percent (approximately) of the 12 million merchant payment terminals in the U.S. will meet mandates to accept more secure smart credit and debit cards and NFC-ready smartphones by the end of 2015. …   Read More

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It's Time for State of the Art Terminals U.S. Lags On Secure Chip Cards and Payment ProcessingWe’re half there … but half may not be good enough.

According to financial professionals at work on necessary conversions, a mere 50 percent (approximately) of the 12 million merchant payment terminals in the U.S. will meet mandates to accept more secure smart credit and debit cards and NFC-ready smartphones by the end of 2015.

The need to convert to more secure systems is due to the high rate of fraud associated with the old magnetic stripe credit card technology still rampant in the U.S.

Though Matt Barr, MasterCard’s senior vice president of U.S. emerging payments, has opined that the current rate of smart card adoption in the country is “impressive” and has “very exciting momentum,” others beg to differ.

According to Jordan McKee, an analyst at 451 Research, recently lamented that the U.S. lags the rest of the world in smart card use.

“Everybody is so behind now [in converting to smart card payments] and it’s bad,” McKee said. “It’s definitely a far-reaching issue, and it’s not just the fault of merchants, but also point-of-sale terminal suppliers and others.”

The Payments Security Task Force, a group of companies integrally involved with electronic payment systems, has predicted that just 47 percent of U.S. merchant terminals will be enabled for chip technology in cards and smartphones by the close of 2015.

“In the past year, U.S. banks have issued more of these secure smart cards, often called chip cards, to their card users in an attempt to meet an Oct. 1 deadline set by card processing companies, such as MasterCard, Visa and American Express, for payment terminals to accept smart card payments,” according to analysis by ComputerWorld. “Beyond that date, any merchant accepting a less secure method, including traditional magnetic stripe cards, will face financial liability in the event of fraud. Card users will not be liable.”

Of course, the major breach of large scale retailer payment systems — at Target and elsewhere — should have served as a “wake-up call for many merchants and banks that accept the magnetic stripe cards.” The Target breach “started a frenzy of activity” toward chip card adoption, according to McKee, who also said that before that incident, retailers largely were waiting for an extension of the October 1 deadline.

How does the new system differ?

“To make a payment, shoppers usually “dip” a chip card into a payment terminal and complete a purchase by signing their names or entering a PIN,” notes ComputerWorld. “Phones like the iPhone 6, which supports Apple Pay, include an NFC chip that can communicate by a touch with many EMV-ready terminals.”

McKee believes it will be 2017 or later before the more secure terminal penetration rate reaches 90 percent.

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