Some Retailers Lagging Behind on Accepting New Chip Credit Cards

Small plastic signs on credit card terminals at St. Louis-area Schnuck’s grocery stores were added this year to alert shoppers attempting to pay for groceries: “chip reader currently unavailable.”

The plastic signs, tucked into a slot on the bottom of the terminals where chip credit cards are meant to be inserted, were installed because Schnucks, like many retailers, has the technology but isn’t yet using the chip card reader.

When shoppers are ready to pay at checkout, some of the country’s largest retailers take the chip cards, and others, but not all, ask them to swipe the card’s magnetic strip.

The chip-enabled credit cards are accepted nationwide at Macy’s, Target and Kohl’s. But many retailers, including Sports Authority and Shop ‘n Save, haven’t yet enabled terminals to accept chip cards at all their stores.

Maryland Heights-based Schnuck Markets Inc., which was the victim of a massive security breach in 2013 that compromised customers’ payment card data, said it wasn’t dragging its feet on implementing the new technology designed to curb fraud.

The grocery chain said it was waiting for its payment processor to determine that its terminals are EMV-certified. EMV is an acronym for the three companies that created and developed the chip card in the 1990s: Europay, MasterCard and Visa. EMV certification is often performed by a third-party approved certifier on behalf of a merchant’s bank.

“We have been ready on the technology side since the middle of last year,” said Schnucks’ spokesman Paul Simon. Simon said Schnucks’ employees came up with the idea of adding the small signs after shoppers were confused about whether to dip their chip-enabled credit cards in the slot or swipe the magnetic strip.

Over the past year, most banks and financial institutions issued replacement cards containing the chip. Many retailers have added chip card readers at their stores but aren’t yet using the technology.

The thumbnail-size chips on new credit and debit cards are intended to drive out fraud by using a unique code with every in-store transaction.

On Oct. 1, 2015, the liability of fraudulent credit card transactions shifted from financial institutions to retailers who didn’t have systems capable of reading the new chip-enabled credit and debit cards. Many retailers spent months readying themselves for the shift, only to wait to use the technology.

“The card industry made a big deal about setting the Oct. 1 target for having EMV in place, and then they dropped the ball,” said J. Craig Shearman, spokesman for the National Retail Federation, a Washington-based trade group. “The card industry did not provide sufficient personnel to certify the installation.”

Some retailers have covered the slot on the chip credit card readers with tape so customers don’t insert their chip credit cards, and instead swipe their credit cards on the sides of the terminals. Swiping the credit card uses information on the card’s magnetic strip instead of tapping into information on the microprocessor chip.

At a Shop ‘n Save in St. Peters this month, a small piece of clear tape covered the terminal’s chip reader, and the cashier said she didn’t know when customers would be able to use the chip card reader to pay for groceries.

“It’s confusing for consumers, and they tend to blame the retailer,” Shearman said.

In an earnings call in late January, Visa’s CEO Charles Scharf said only 17 percent of merchants in the U.S. that accept credit cards had customers dip their cards in the chip reader instead of swiping the magnetic strips.

“Based on our recent client surveys, we expect 50 percent of locations to be enabled by the end of this year,” Scharf said in the call.

For Schnucks customers, the wait may soon be over. “We hope to start rolling it out later this month,” Simon, the chain’s spokesman, said.

Jaren Drieling, business intelligence manager at the Strawhecker Group, or TSG, an Omaha, Neb.-based consulting group for the electronics payment industry, said EMV merchant adoption was slower than many expected after the liability shift in October.

“If you’re a merchant, it’s a huge undertaking to make that change right before the holidays,” Drieling said. “Some saw it as a possible disruption in the checkout line causing friction and lost sales” and delayed EMV migration, he said.

Additionally, some smaller mom-and-pop merchants may put off adding chip card readers because they don’t view themselves as a risk for fraud, Drieling said. Only 37 percent of card accepting merchants were EMV-ready, according to a January TSG survey of payment service providers.

First Data, an Atlanta-based payment technology firm, is one of the largest companies in the U.S. that provides EMV certification for merchants. Steve Mathison, First Data’s senior vice president of payment acceptance, said some big box retailers had had EMV-capable hardware for several years but didn’t begin adding the software until last year, prompted by the October liability shift.

First Data hasn’t experienced delays in certification, Mathison said, but he said the process could be daunting for companies without operations overseas, where EMV already is in place.

“For retailers starting from scratch in the U.S., to get through it, it can be complicated,” he said. “It means ensuring the software meets the standards so the card’s interoperability is not disrupted.”

Challenges arise when retailers have multiple ways to pay, including terminals at fuel pumps and self-checkout, he said. “It can be an eye-numbing set of tests.”

Vantiv, a payment processing and technology provider based in Cincinnati, said the EMV certification process could take six months or longer.

“The final U.S. debit guidelines were released in (the first quarter) of 2014, only 18 months ahead of the largest EMV deadline in global history,” Vantiv’s senior vice president of EMV Issuing and Acceptance Strategy Patty Walters said in an email. “Unlike the rest of the world, American merchants and their … partners had less than 18 months to enable, test and validate their systems to support EMV in order to meet the liability shift.”

Vantiv also cited the holidays as a reason more retailers weren’t yet accepting EMV credit cards.

“While Vantiv and other processors encouraged merchants to begin the EMV certification process early, … many retailers did chose to delay their EMV migration until after the peak holiday shopping season,” she said.

However, B&R Supermarket, a small grocery chain in the Miami area, claims the credit card companies knew implementation would be a lengthy process yet they insisted on the October deadline rather than provide a grace period for retailers.

In a lawsuit filed last week against the major credit card companies and EMVCo., the organization that oversees the technology, B&R claims the credit card companies imposed the deadline as a way to shift the fraud liability onto retailers that couldn’t get their EMV readers certified in time.

The lawsuit, filed in U.S. District Court in San Francisco, says that even though B&R bought and installed the readers “well prior” to the deadline, the grocer is still waiting for certification and it can’t even be told when certification might happen.

The grocer’s lawsuit, which is seeking class action status, alleges the credit card companies’ conduct is in violation of the Sherman Antitrust Act.

“We believe the lawsuit lacks merit, and we plan to defend the case vigorously,” an American Express spokeswoman said.

A MasterCard representative declined to comment on the specifics of the lawsuits but said: “We have and continue to work with parties across the industry — merchants, issuers, processors, manufacturers — to assist in this migration.”

Representatives for Visa, Wells Fargo, Discover, Chase, U.S. Bancorp, Citibank and Bank of America declined to comment on the lawsuit.

Barclays, Capital One, USAA and JCB did not respond to a request for comment, while EMVCo. and UnionPay couldn’t be reached.

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