Idaho Business Review: Banks, processors bet on microchips


The biggest bet on chips these days isn’t at the casino.

Amid concerns over the ease with which credit and debit cards can be counterfeited, banks, retailers and firms that process transactions are shifting to newer, more costly cards with micro-chips that are more difficult to duplicate.

They’re buying new software and upgrading and replacing automated teller machines to prepare for EMV cards – named for EuroPay, MasterCard and Visa – that use encrypted data in microchips rather than magnetic strips.

Don BushThe systems, also known as “smart cards,” already are widely used in Europe and other parts of the world, although they haven’t caught on widely yet in the United States. But recent breaches at retailers like Home Depot, Target and other stores highlighted the need for increased security in credit and debit cards, adding momentum to the move. Some Idaho banks are already using the cards. Officials at D.L Evans Bank said they’ll be switching to them soon, and Idaho customers of Charles Schwab are already receiving the cards.

Putting the pressure on retailers, credit card firms have announced dates by which companies must be able to process cards with micro chips – or assume liability for fraud. Visa, MasterCard, American Express and Discover want a shift at point-of-sale terminals by next October and at gas stations as of October 2017 – after which they will hold operators unable to process chips liable for fraud. Meanwhile, Visa wants the shift at ATMs by October 2017, while MasterCard is pushing for the move by October 2016.

“It’s much more secure,” said Don Bush, marketing director for Kount, a Boise company that helps retailers prevent fraud. “It’s also much more difficult to counterfeit, which is really what the big deal is. It’s pretty easy to get all the equipment you need to counterfeit a credit card today.”

Bush said the shift in liability called for by Oct. 2015 will motivate banks to switch to the new technology. The several recent data breaches at major retailers such as Target and Home Depot have also promoted the switch.

“A lot of credit cards as they were reissued were made chip and pin,” Bush said.

The move from strip to chip is a big move for companies in the financial payments sector.

“Everyone’s focused on it,” said Kevin Hodges, chief financial officer at Evo Payments International, a payments processor in Long Beach, N.Y. “There will be some short-term hiccups as banks spend money to issue more expensive chip cards to consumers.”

The switch will also prompt other switches in technology, as merchants move away from card readers, including Square, an iPhone app that enables the holder to read magnetic strips. Bush said Europeans are already using “Square-like devices” that hook to a phone and enable small merchants, for example sellers at farmers markets, to read the chip and pin cards.

“In the U.S, that’s a lot more rare, because it hasn’t been required,” Bush said. “But I think you’ll start seeing those devices.” EMVs are business as usual nearly everywhere outside the United States. MasterCard made the shift in Europe in 2005, while Visa shifted at points of sale in 2006 and at ATMs in 2008.

Since most of the world already uses EMVs, manufacturers already mastered the technology, sometimes supplying U.S. retailers and banks with terminals easily adapted to the new cards.

Visa said the process of using the new cards isn’t slower, but it feels that way because consumers don’t get cards back until they’re validated.

Source: Idaho Business Review (paywalled).
By Claude Solnik, September 10, 2014