Which Came First - The Chicken or the Egg?

I had my first experience using one of the new chip-enabled credit card readers last week.  Interesting.  Instead of swiping the card on the side of the terminal, it had to be inserted into a slot in the bottom.

Several years ago Visa and Mastercard had made October 1^st this year the target date to have the new terminals fully in place and implemented nationwide.  Unfortunately, the deadline hasn’t been close to being met.  Target, Walgreens and Walmart have installed the new terminals, but most other retailers haven’t done so due to their high cost.  Each one has a price tag of $600 to $2000 apiece.  The chip cards themselves are 5 – 10 times more expensive for the card issuers.

Implementation has been slow: fewer than half of banks and credit unions have adopted chip enabled cards, and only a quarter of retailers have done so.  So what’s happening is that retailers don’t spend the money to upgrade because there aren’t enough cards, and banks don’t issue the cards because there aren’t enough card readers.

This is important because the chip cards are much more secure than our current magnetic strip-formatted cards.  Europe has been using the chip-type cards since the 1990’s.  The magnetic strip has a single, permanent authentication code which can be copied by hackers and reused.  The chip-enabled cards create a new authentication each time it’s used; that’s why it can’t be swiped, but must remain in the reader for the entire time of the transaction.

It will likely take two to three years more for full implementation.

(Bloomberg Business Week)

-Doug Conoway

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