Home > Credit Cards > Why Aren’t Retailers Using Their Chip Card Readers?

Comments 0 Comments
Advertiser Disclosure


What are you supposed to do when you pull out plastic to buy something at a store these days? You’ve probably noticed that plenty of stores have terminals that obviously have a slot for inserting a chip-enabled credit card, but when you try to do that, an anxious store clerk yells something like, “Nope, we don’t take chips yet. Please swipe.”

Back in October, a much-ballyhooed deadline marked the great switch from old-fashioned magnetic stripe cards to newer EMV chip credit cards. Well, that was the plan anyway. Despite some slow, steady progress, most of us are still swiping our stripes instead of dipping our chips several times each week.

The Dipping Delay 

Initially, the bottleneck was thought to be caused by the large investment stores had to make in new point of sale terminals, which run about $500 for each checkout line.

But anyone who’s done any shopping in the past few weeks might be left with the impression hardware isn’t the problem: chip readers seem to be everywhere, but the switch hasn’t been flicked yet.

The impression is accurate. According to the industry group EMV Migration Forum, there are roughly 5 million EMV-ready terminals at U.S. stores right now, but only 1 million have started accepting chips. In other words, when you see a chip reader, odds are 4 out of 5 that you won’t be able to use it.

What’s the holdup? While it might seem obvious to blame stores for not enabling the devices, some merchants are blaming the banking industry, and a lawsuit filed last week in a California federal court claims that the banking industry collaborated to hand the bill for fraud to store owners.

Back in October, new network rules went into effect that essentially require merchants who haven’t upgrade to EMV terminals to cover the cost of fraudulent transactions. (Prior to the shift, financial institutions generally covered the cost of fraud.)

Last week, two small Florida stores filed a lawsuit seeking class action status, saying their bill for fraudulent transactions has increased perhaps 20-fold since the October deadline and the EMV delay — playing out in smaller stores across the country — is costing them big money. The lawsuit names payment networks like Visa and Mastercard, along with large payment processing firms. Both Visa and Mastercard said they were reviewing the claims in the lawsuit.

Not Just a Hardware Issue

It turns out that getting new hardware into stores was just the first step in the conversion process, and in many cases, the easier step. New software comes next, and that’s been causing holdups, experts said.

“Just because you see an EMV slot on a terminal, doesn’t mean it works,” said Michael Moeser, director of payments at Javelin Strategy and Research. “Getting the terminal to accept EMV cards is a two-part process. First, the merchant either needs to load newly developed software or integrate new software from a third party into its back office systems to allow the terminal to accept EMV. Second, then the new terminals and the merchant need to undergo a certification process with each of the card networks, typically done in combination with its merchant acquiring bank. The certification queue is currently very long as you can imagine that there are a number of merchants seeking to roll out EMV at the same time.”

While that delay is annoying to shoppers — “what do I do, swipe or insert?” — some merchants say it’s killing business. According to the merchant lawsuit, Milam’s Market and Grove Liquors in Florida faced 88 chargebacks for fraudulent transactions totaling $9,200 from MasterCard and Visa since the Oct. 1 liability shift, plus $5 chargeback fees for each item. During the same span last year, the firms faced only four chargebacks, the lawsuit said.

The stores say they purchased EMV hardware long ago, and are simply waiting for their terminals to be certified. The lawsuit says the stores have been told the queue for certification is so long they have no idea when it might come.

“Tellingly, nothing Milam’s Market could have done – short of making the business-crippling decision to stop accepting Visa cards – could have prevented this outcome,” the lawsuit says. “Class members such as the plaintiffs here, could not timely comply with the standard, no matter what they did, because the Defendants refused to, or were unable to, ‘certify’ the new equipment by the deadline – or, indeed, the ‘certification’ process would take years after the … Liability Shift was imposed.”

The Debit Sticking Point

Shifting the way America uses plastic was bound to encounter snafus, but Randy Vanderhoof, EMV Migration Chairman, said the American payment market faced particular challenges because of the way debit cards are processed. Federal law designed to promote competition in debit card processing requires that merchants have a choice of networks for processing payments, but that made writing software for EMV debit cards much more complex.

“We have a regulatory environment which requires that every card issued has to support at least two unrelated payment networks for processing,” he said. “So software and certification testing on debit was more complicated and later to arrive.”

Since the specifications for EMV debit card processing came late in the game, some in the payment industry decided to delay their conversion work. Otherwise, stores and processors would have found themselves supporting EMV for credit cards, but magnetic stripes for debit cards, potentially frustrating consumers and causing two hardware and software conversions.

“That is not an ideal consumer experience,” Vanderhoof said. “You could have the same customer using debit in one transaciton (and swiping) and then credit in another (and inserting a chip card). You can start to appreciate it is not a simple thing.”

The merchant lawsuit makes this point too, quoting Terry Crowley, CEO of TranSend, which makes EMV software. He says that writing code to make the terminals work has become infinitely more complex in recent years. According to the lawsuit:

“Crowley said that while software code for card-accepting devices was historically simple enough to be written on the back of a business card. ‘Now with EMV, that same software wraps around the walls of a room three times … hundreds of thousands of lines of code.’ With the Liability Shift deadline having passed, Crowley says, suddenly there is a ‘fire drill’ to replace all of this simple software, compounded by the facts that the EMV code is hard to write, harder to certify and that few EMV software developers understand the U.S. market.”

Mobile in the Mix

Complicating matters more, the switch to chip cards is hardly the only change happening in the way consumers pay for things at checkout. Stores are trying to be ready to accept mobile payments, like Apple Pay or Samsung Pay, also.

“A number of merchants have decided to rollout other payments technologies at the same time of an EMV rollout which creates a more complex — time consuming — deployment,” Moeser said.

Vanderhoof is optimistic that the problem is temporary, and the payment industry will work through the backlog in fairly short order. The EMV Migration Forum believes 50% of terminals will be enabled by the end of this year, and 90% by the end of 2017.

But for now, many merchants are blaming the banking industry — and the Florida store lawsuit accuses banks of knowingly conspiring to hand them the bill for fraud.

“What defendants knew, but Milam’s Market, Grove Liquors and the rest of the Class did not and could not know, was that purchasing new (point of sale) equipment and training their staff was not going to be enough,” the lawsuit says. “Requiring working EMV hardware and software by the Oct. 1 deadline were conditions, it would turn out, which were impossible for the Class members to meet and which the Networks, the Issuing Banks and (industry) knew were impossible to meet.”

Consumers generally aren’t held liable for unauthorized charges, but that doesn’t mean you shouldn’t monitor your financial accounts regularly for fraud. You can also monitor your credit if you have reason to believe your personal information was compromised alongside your payment information. A sudden drop in credit scores can be a sign identity theft is occurring. (You can keep an eye on your credit by viewing your two free credit scores each month on Credit.com.)

More on Credit Cards:

Image: RL Productions

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team