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It’s rare for witnesses invited by both political parties at a U.S. Congressional hearing to be in unanimous agreement—so rare that when I settled in to watch the testimony before the U.S. House of Representatives Committee on Small Business, I fully expected to see the committee and its witnesses at loggerheads regarding EMV card adoption. I was wrong.
First, as is always the case with the majority party, came the witnesses for the Republicans. There, the witnesses included a series of small-business owners and managers, all of whom bemoaned the lack of information, and in fact, the lack of any communications regarding the adoption of EMV card technology, in which credit and debit cards are outfitted with a chip that eliminates the need for the magnetic stripe technology that until now has been in common use in the United States.
While the experiences of the small businesses were different, they all found information wanting. Only one witness, Jami Wade, owner of Capital City CORK, a restaurant and wine store in Jefferson City, Mo., had been able to successfully convert her point-of-sale system over to accept EMV-equipped credit cards. While she was successful, she made it a point to explain to the committee that her credit card processor had an office down the street and was a regular customer in her restaurant. She also said that she took proactive action to make sure she was ready for the liability shift, and ready to accept cards with chips when they started showing up.
The other small businesses testified that they had been unable to complete the transition. In one case, gallery owner Keith Lipert, from Washington, D.C., said that, so far, he’s not even been able to get his credit card processor to discuss using cards with chips. The other witnesses, including convenience store and gas station owners, had similar stories. They were struggling to get information on accepting cards with chips, but even worse, they were deeply concerned about the rarity of EMV cards with PINs for security.
The Democrats’ witness, Ed Mierzwinski, consumer program director and senior fellow for the U.S. Public Interest Research Group, said that his research supported the positions of the other witnesses. He added that it appears to him that credit card processors are “slow walking” the process, and taking advantage of only those parts of the EMV conversion that benefited them.
This meant that card processors are adopting EMV in its chip-and-signature form, which prevents counterfeit cards from being used, Mierzwinski said. However, the card processors are not adopting the use of PINs, which are more secure and prevent the use of lost or stolen credit cards, because it would reduce their profits, he added.
Another witness said that the liability shift was meaningless because card processors were already charging merchants for disputed charges even when their actions were contrary to the law.
The liability shift is a practice put into place by the major credit card issuers, effective Oct. 1, that changes the way fraudulent charges are handled. Before Oct. 1, the credit card issuers absorbed bogus charges as long as the merchant followed the rules and met compliance requirements. After the shift, merchants that accept a card with a chip that turns out to be bogus are stuck paying for the charge. The only way they can avoid that is by having, and using, a terminal with a card reader.
Credit Card Processors: The Weak Spot in EMV Adoption
Not being content to accept the word of carefully selected congressional witnesses, I did some checking on my own. I started with my ophthalmologist where I paid my co-pay with a card that has an EMV chip and requires a PIN. This caused consternation among the office staff. As it turned out, the doctor’s credit card processor had changed out their terminal the same morning, but hadn’t explained to anyone how to handle it. I provided an unscheduled training session on chip-and-PIN transactions so that I could pay my bill.
Then after the hearings, I called the owner of the legendary Trummers on Main restaurant in the Washington, D.C., suburbs and asked co-owner Stefan Trummer whether they were accepting chip cards. They weren’t, he said, even though he was aware of the requirement due to communications through the restaurant association in Washington. His credit card processor had never mentioned them, discussed how to upgrade their point-of-sale system or how to acquire the terminals they needed.
Next, I called the owner of a local camera store, who asked not to be identified because he didn’t want to expose the vulnerability, and I was told a similar story, except that his credit card processor said that his point-of-sale system would never be able to be upgraded. I called a local jewelry store owner and got a similar story. On their own, the credit card processors in the D.C. area are much like those the congressional witnesses discussed—meaning that they’re happy to let their merchants twist in the wind as long as they are protected.
Fortunately, there are other stories. I visited my local Acura dealer after the testimony and talked about EMV with the general manager, Lenny Gonzales. Gonzales said that he had been discussing the need to accept credit cards with chips for several months. He said that while the dealership normally doesn’t sell vehicles as credit card purchases, they play a big role in the company’s service department. Gonzales was happy to report that his company accepts EMV credit cards, not to mention Apple Pay.
The unfortunate news is that stories like those of my eye doctor or at the Acura dealership are far too rare. For merchants that aren’t technically sophisticated, the path to a secure payment system is not at all clear. Even more unfortunate, it’s being obfuscated by groups representing the payment card industry that are openly derisive of the merchants’ concerns. Merchants and ultimately their customers aren’t the concern, it seems, as long as the payment card folks get their money.