Oct. 1 is the date set by the U.S. payments industry for banks to finish replacing credit and debit cards that use the old magnetic stripe technology with more secure smart cards sporting microchips. At the same time, businesses nationwide are expected to upgrade their payment terminals to accept the new cards.
The goal is to add more protection against the fraud that amounts to some $5.5 billion annually in the U.S. alone.
For now, the new cards also will have magnetic stripes so they can be used at businesses that haven’t made the switch. But merchants that aren’t ready to process smart cards by the deadline will start bearing the cost for certain fraudulent transactions previously absorbed by card issuers.
While major retailers such as Wal-Mart, Target, Walgreens and others are already smart-card compliant, small businesses are lagging. According to a recent nationwide survey, the vast majority don’t plan to meet the deadline, while another survey found roughly half of small business owners weren’t even familiar with the technology.
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Card payment processors and companies that sell card readers could be doing more to inform small businesses about the changes, according to John Swanciger, CEO of the small business community website Manta.com. He called the lack of awareness “worrisome.”
Randy Vanderhoof, executive director of the Smart Card Alliance, an association of banks and payment companies, said meeting the deadline was more critical for the largest businesses because of a greater risk of fraud.
“They are probably more exposed to the potential fraud risks than the smaller businesses that often serve a local (clientele) and know most of their customers,” he said.
Vanderhoof said the big card networks such as Visa and American Express have been trying to raise awareness among small businesses through road shows and the media.
Some payment companies have been promoting the switch by offering upgraded card readers for free, he said, so small business owners might want to ask their card processing provider about how they might get one.
“There is no mandate to make this change,” Vanderhoof noted. He said it’s really a business decision based on the cost of upgrading vs. the risk of fraud.
The fraud liability shift applies to in-store purchases but not to transactions conducted online or over the telephone, where fraud costs have traditionally been borne by the merchant, he said.
Because some banks are only issuing the newer smart cards as customers’ old cards expire, many consumers won’t have smart cards by the deadline, Vanderhoof said.
That’s the case at PNC Bank, which expects the distribution process to extend into next year, a spokeswoman said.