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EMV Technology

New Credit Cards Cause Hassles For Some

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EMV credit cards are being accepted at over 78,000 merchants.
EMV credit cards are being accepted at over 78,000 merchants.
The rapid spread of new credit and debit cards containing new chip technology is causing all kinds of problems for companies that charge cards on a subscription basis.

Subscription based companies such as video and music streaming companies, dating services, gyms and many others, are facing serious challenges as millions of the new chip-embedded cards go into use across the country.

Netflix, for instance, reported recently that it lost a large number of accounts during the three-month period that ended in September. Many of the customers who cancelled were not aware that with the new replacement cards, they must update their information to allow the merchant to automatically withdraw payments.

As the new cards go into service, in many instances the card number is changed. Or the number is okay, but the expiration date has been changed. That all wreaks havoc for the companies that have benefited from automatic withdrawals in the past. Payments often won’t go through if the card’s expiration date has changed.

A San Francisco company that manages bill collection for more than 1,900 subscription businesses reports that it has seen an increase in the number of transactions declined recently.

Bumps in the financial services that deal with these businesses are caused by any irregularities in the marketplace. The data breaches in big retailers, such as the recent Home Depot debacle, for instance, threw them into disarray because thousands of those who shop the home improvement store had to get new cars.

Dating websites such as Match.com and OkCupid also felt the effect of credit cards that were not updated. IAC/InterActive Corp, parent company for the dating services, lost some $5 million in earnings because of the problems.

Although the new chip technology is expected in time to make huge dents in the costly fraud that has plagued the card services, there are obvious downsides to the switch that will require resolution as the technology becomes widespread.

Related articles across the web

    Fraud And Liability Charges For Merchants

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    EMV credit cards are being accepted at over 78,000 merchants.
    EMV credit cards are being accepted at over 78,000 merchants.
    More and more credit and debit cards containing fraud-busting chips are showing up at the point of purchase. Creditcard.com reports 78,800 merchants have installed EMV technology. That’s good news for most individuals, but have become a source of concern for small businesses that can ill afford the equipment needed to handle the new cards.

    Banks and credit card companies hail the advanced technology as a way to sharply reduce fraud opportunities. They are distributing the cards and phasing out magnetic strip cards that are easier targets for thieves. But the cost of refitting to accommodate the new chip cards is hurting small businesses. The cost can range from the low hundreds to tens of thousands of dollars, depending on the required equipment. Merchants who don’t have the EMV processing equipment and then have a fraud issue could face a charge-back so big, it could put them out of business.

    The retailers are under notice that they must make the transition by Oct. 1, 2015 when the magnetic strip cards will be phased out. If they don’t comply, the credit card giants, such as MasterCard, Visa and American Express will make them liable for transactions made with phony chip cards.

    The small companies have a double whammy. They don’t have the volume of business to underwrite the costs of new equipment and they don’t qualify for the discounts that those who sell the equipment offer to larger businesses.

    A consumer sees only a small part of the payment processing system. Software in the merchant’s computer only receives the transaction information. It then goes to a processor, which posts a charge or debit to the cardholder’s account and a credit to the merchant’s account.

    Even the simplest card readers used in stores and other small businesses cost at least $100. At the outset, the readers also will be able to read magnetic strips and/or handle so-called contactless payments made with services such as Apple Pay or Google Wallet and other electronic wallet applications. More complex reading systems will run into the thousands. They manage inventory and customer/vendor information. Restaurants and businesses with multiple locations are likely to have the most complex systems and so the highest expenses.

    Besides the costs of reading equipment, many small businesses will have to hire the expertise needed to accommodate the upgraded technology. Such experts charge $100 an hour or more to install systems and ensure that they work.

    But with the growing concerns for the amount of fraud that has beleaguered retailers and their customers, the handwriting is on the wall. The expectation that the chip-embedded cards will make inroads into the problem will likely trump any other concerns. Small businesses will have to make the leap, regardless of the cost.

    EMV Technology Becoming a Credit Card Reality

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    Chip and signature technology for credit cards is helping fight theft.
    Chip and signature technology for credit cards is helping fight theft.
    With credit card security becoming more challenging, more banks are issuing cards with tiny computer chips that will, hopefully, make card use less risky.

    Over the next year, it is likely that banks will replace credit and debit cards that feature magnetic strips with chip-embedded cards. One of the country’s largest bankers, Bank of America, announced recently that new customers will be issued cards with chips. Existing cards will be upgraded as they expire, the bank said.

    The chips create a unique code for each transaction, which, hopefully, will stymie thieves who can use the magnetic strip information to create new cards.

    The new technology has been in use in foreign countries for some time and U.S. banks have issued chip-embedded cards to Americans planning foreign travel. Shifting to chips in the U.S., however, has been complicated by the complex payment networks in use, according to a New York Times article. However, recent instances of serious data breaches has spurred adoption of the chip technology. Among the recent breaches was hacking of Home Depot data, which jeopardized data on 56 million cards.

    Among the large financial institutions hurrying into the process is Chase, which said it already has issued a large number of chipped cards and expects that by the end of the year most of its debit cards will have the new technology. Wells Fargo is experimenting and plans to issue chip-embedded cards in the coming year. Citibank also will make the full shift in 2015. Most customers already have the option of requesting a chipped card.

    While the banks hurry to implement the new technology, many retailers are behind the curve, the NYT article said. They do not have payment terminals to process the cards. Some major retailers, including Whole Foods, Sam’s Club and Costco, have the equipment and are accepting the new cards. It is expected that most big stores will have the right payment terminals by October 2015. Meanwhile, some card issuers are including magnetic strips as well as chips on their cards so customers can use either technology.

    Users will discover some differences as the chip-embedded cards go into service. Magnetic stripe cards are swiped at the cash register. Chip cards are dipped into a reader and remain there for a few seconds while the transaction is approved. Customers will need more cautious to be certain they retrieve the card. That’s a small requirement in exchange for what will be less worrisome shopping.