Have you received your new counterfeit-proof, microchip-based credit card?
If you haven’t, you’re not alone.
Despite high-profile data breaches in the last year and a looming deadline this fall, merchants and retailers have been slow to switch to credit cards with safer chip technology, according to a new report by creditcards.com, a consumer website.
Only three out of 10 cardholders in the United States are carrying chip cards in their wallets. Most of these cardholders have high incomes and live on the West Coast or in the Northeast, according to the survey, to be released Thursday.
The new credit cards, which are supposed to replace those with magnetic strips, have a small microchip in the front that makes them nearly impossible to duplicate. Banks and card issuers must provide their customers with these new cards and merchants have to replace their checkout terminals with machines that allow cards to be inserted instead of swiped.
After October, if a security breach occurs and card numbers are exposed, the company that did not allow for chip card transaction, either the retailer (because it didn’t have a new machine) or the bank (because it did not issue a chip card), will have to cover the costs, according to rules adopted by card companies Visa, Mastercard, and Discover.
Currently, banks or the card companies bear costs of data breaches and any resulting fraud.
But the new chip cards and merchant card readers are expensive and that has slowed the process, experts said. They could cost the industries $8.6 billion, according to Javelin Strategy & Research, a California company that follows technology and financial institutions.
Large retailers, such as Walmart, have installed new card readers at sales terminals and are using them. But many other businesses have not replaced their old machines. Some have adopted the technology but have not turned it on yet because they need to train staff or integrate it into the company’s network.
Mercator Advisory Group, a Maynard consulting firm, estimates that by the end of this year, half the merchant terminals will have the equipment to accept chip cards, but only a quarter of them will be turned on.
These smart credit cards have been used in Europe since the 1990s, but adoption in the United States has lagged. After a data breach of the giant retailer Target in late 2013, the chip cards gained renewed attention from both consumers and businesses. Target moved more quickly to replace its store-brand credit cards with ones that contained the chip.
But if bank officials do not see a large number of merchants using chip-reading credit card terminals, they do not feel the urgency to spend money to replace the cards, analysts said. And if retailers do not have customers complaining that the terminals will not accept their smartcards, they do not see a reason to rush to buy new equipment, said Matt Schulz, a senior industry analyst for creditcards.com.
Banks, however have been more aggressive at getting these chip cards to their wealthier customers, according to the creditcards.com survey, which found that nearly half of those with investment income of more than $100,000 had them. These are the customers that both retailers and banks want to keep the happiest, Schulz said.
They are also the ones most likely to travel abroad. As a result, many banks give them first priority on the card replacement cycle, because they would need these cards to shop overseas, said Ken Paterson, vice president of research operations at Mercator Advisory.
Paterson said he expects faster adoption of chip cards after October, when banks and merchants could become liable for fraud costs. Still, experts warn that these new cards won’t eliminate credit card fraud or all data breaches. Cards can still be stolen or fraudulent purchases made online.