Are You Ready For Smart Chip Credit Cards?

The Wall Street Journal today is reporting that US credit card issuers will distribute more than 575 million smart chip credit cards by the end of 2015.  That's approximately one-half of the one billion credit cards in circulation in the United States. The distribution of chip cards–in wide use throughout the rest of the world–has been hampered in the US by a chicken-and-egg problem. Because the US consumer and retail marketplace were early adopters of credit card payment systems, the US has a massive infrastructure supporting the old-tech magnetic strip cards. Retailers have been unwilling to introduce the new technology until consumers have the chip cards in their wallets; banks have been unwilling to issue chip cards until consumers have a place to use them.

Now, spurred by massive data breaches involving credit cards like the one that hit Target last year (interestingly enough, Target was an early adopter of smart chip cards in the early 2000s but abandoned the effort after other retailers failed to follow suit), the tide has seemingly turned. The advantage of the chip card is that each transaction has a unique code attached to it, making a stolen credit card number alone useless to thieves. The WSJ article notes that the biggest retailer in the US, Wal-Mart, has installed the new technology at 4,600 of its stores and expects to complete the changeover at all 5,000 of its locations by year's end.

Franchisors and franchisees will be on the front lines of this massive switchover to the new technology. And it sounds like both patience and some new employee training will be required. In particular, you do not simply "swipe" the new cards. Instead, they are inserted into the card reader and stay there until the transaction is completed. In some cases, moreover, the entry of a PIN will be required. While the switchover will probably entail some bumps along the way, smart chips are likely to become the industry standard for fraud prevention in the US, as they have in the rest of the world. Moreover, VISA and MasterCard announced that any actor–retailer or card issuer–without chip technology in place by October 2015 will bear the cost of fraud committed on their networks.  Therefore, adoption of and compliance with smart chip card technology will almost certainly become necessary for risk and liability avoidance in a short period of time.

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