Chip Cards: Blowing up or Lagging Behind?

3323417297_154f5f66b3_z-1It’s time—finally. Chip cards are becoming the new norm in the U.S., after several years of usage in Europe and other industrialized nations. Replacement cards are being sent out for accounts all across the nation to make sure cardholders are current on the new chip card standard and to ensure banks don’t take on full liability for any breaches that might occur with magnetic strip cards—which is the penalty if banks don’t update to chip cards by October 1, 2015.

Unfortunately, many experts and analysts are finding that the chip card transition is encountering more challenges than expected.

For the sake of perspective on this transition to chip cards in the U.S., consider the following statistics. They’ll give consumers and business owners a little more insight on why it’s so important for the U.S. to make this transition—and why it’s so long overdue.

  • As of 2014, 83 percent of western Europeans used cards with chip and pin technology, compared to only 7 percent of U.S. consumers.
  • France, the first country to make the switch, adopted chip card technology in the 1980s.
  • In 2014, 49 percent of data breaches involved theft of personal identifying information (PII) and cardholder data (information that could be protected by the use of chip cards, which encrypt data utilizing random purchase codes before transmitting any sensitive details).

Now, consider the current hang-ups:

  • Analysts expected a huge number of banks to spend 2015 getting caught up on issuing new cards, but as of late March 2015, JPMorgan Chase had only replaced 34 percent of its 50 million cards while Bank of America did not provide an exact number, only stating that a “majority” of its cards will be replaced by the October deadline.
  • Javelin Strategy & Research estimates that only 23 percent of all debit and credit cards will actually be replaced by the end of 2015.

In a nutshell, the majority of banks will be taking on full liability for the possibility of breaches on a large number of cards. Shops, too, run the risk of being held liable for any breaches that occur as a result of card readers lacking the necessary upgrades to process chip cards at checkout. Since time is nearly out, many banks and stores will be taking on a higher level of risk between now and a full transition to chip card technology—which might not happen until as late as 2017.

The scariest thing, though, is that many analysts say the planned approach for the U.S. isn’t even going to result in the secure, breach-proof system that the chip cards were designed to create.

Apparently, according to some credit card issuers, Americans are expected to be resistant or incapable of using the new systems in their entirety, which require a “dip” (instead of sliding mechanism) and a pin. The U.S. will be using the signature system to start with, since remembering a unique pin for purchases at a checkout terminal (different from the ATM pin) is being considered by some as too much to expect in the beginning.

At the very least, the new chip cards make it almost impossible to make physical card copies for use at retail terminals, as the encrypted chips are far more difficult to recreate than magnetic strips. Unfortunately, online retail purchases are still at risk if hackers are able to get their hands on card numbers, expiration dates, and other details.

Until a complete chip card transition is in place, many consumers are still at risk for data breaches and card information theft—and even when the system is fully installed, it’s not completely theft-proof. Still, the data from European retailers, who all switched by 2005, shows a significant decrease in stolen information. At this point, U.S. retailers and consumers would benefit from at least making it a little bit harder for hackers to make millions by stealing it from hard-working U.S. citizens, who, at this point, seem to be experiencing greater levels of theft without any way to make it stop.

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AshleyAbout the Author – Ashley Choate is a native of Jacksonville, FL where she lives with her son, dog, and three cats. She graduated Magna Cum Laude from Jacksonville University with a BA in English and holds an MAED in Adult Education and Training. She lives for reading and writing, learning and teaching, and figuring out the day-to-day traumas and joys of mommyhood. .

 Top Photo Courtesy of Automotive Social @ Flickr CC.