Retailers question chip card safety

Retailers question chip card safety
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Retailers warned lawmakers on Wednesday that microchip-enabled credit cards don’t go far enough to protect consumer data.

The House Small Businesses Committee heard from retail associations and small businesses about how the switch to using chip-enabled, or EMV, cards is affecting their business.

While retailers insisted they support the transition, they said they are worried that the technology is insufficient.

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Lawmakers seemed sympathetic, but cautioned that nothing is perfect.

“New technologies hold great promise, but there are no silver bullets,” said Committee Chairman Steve Chabot (R-Ohio). “And that’s why this committee supports innovation in the electronic payments space, and we hope that small businesses will look at new securities as opportunities for better customer service.”

The meeting came after an Oct. 1 deadline where merchants who had not upgraded their technology to accept EMV cards would have to foot the cost of any fraudulent transactions.

The committee held a hearing on Oct. 7 to hear from the financial institutions that argue the move would reduce credit card fraud and help stop hackers. But retailers claim the transition is costly and that they have not had enough time to adopt the technology.

Retailers also claim that the process to obtain, install and certify their chip-enabled card terminals is taking longer than expected, with several small businesses saying they will not be fully-compliant until summer 2016.

“Perhaps the biggest concern is the liability shift resulting from not installing the new EMV readers,” said Rep. Nydia Velazquez (D-N.Y.), the committee’s ranking Democrat. “Many small businesses are unaware of this new outcome and that is a problem.  However, it is also important to note that EMV is not a mandate and that businesses are not required to install the readers if they determine that their risk of fraud is low and the transition cost is too high for them to bare.”

Retailers have long argued that chip-enabled cards should be accompanied with a secondary four-digit identification PIN code, similar to an ATM code, that consumers would type in, instead of using a signature verification.

Without the PIN, retailers claim that hackers can still reuse stolen chip card data for online transactions. Aite Group estimates U.S. online card fraud will more than double from $3.1 billion to $6.4 billion between 2015 and 2018.

“As a small business owner, I am also frustrated because I am investing heavily into a technology that offers second-rate security,” said Jared Scheeler, managing director at The Hub Convenience Stores and board member of the National Association of Convenience Stores. “Despite the cost, EMV will not reduce fraud as much as it could and should.”

However, financial institutions like Visa and MasterCard claim that PIN verification will be outdated with the rise of mobile transactions and other digital payment technologies, like the use of biometrics.

“Small retailers are entirely at the mercy and whims of the big banks here,” said Keith Lipert, board member of the National Retail Federation and a business owner. “Unless the government or someone can help achieve a level playing field, we’ll continue to see the slow destruction of the small local merchants that provide the glue for our communities.”

Jami Wade, an owner of a restaurant and wine shop in Jefferson City, Mo., said she understands that technology changes and she’s prepared to update her systems when needed.

“It’s like when the iPhone comes out,” she said. “I like to have the newest one. I like to be up on technology. It’s a part of doing business and it’s something I am committed to doing.”

Rep. Blaine Luetkemeyer (R-Mo.) said embracing the transition to chip-enabled cards allows for businesses to minimize fraud.

“If we knew in the neighborhood that there were a lot of burglaries going on, you’d be willing to spend some money, probably put a burglary system in to keep your business safe,” he said. “Well, this is kind of equated to that to keep your money safe.”

Chabot said he could understand how the transition to the chip-enabled cards can be overwhelming to small businesses.

“I can certainly relate to being technologically-phobic,” he said. “I feel that way myself very often.”