Pay It Forward: 5 Things To Know About Chip Card Technology

Change Is Coming

The large number of data breaches in the past couple of years has led to a growing number of fraudulent credit card transactions, and banks, credit unions and other card distributors are rolling out new credit cards to battle this problem. These new credit cards feature processors and are creating a big change in the point-of-sale and retail space, change that will open the door to opportunities for solution providers to deploy new systems and help manage the process. Here are five things to know about chip card technology.

Secure Payments

To battle credit card fraud and to prevent leaks of financial information from data breaches, card distributors are rolling out new types of credit and debit cards nationwide. Some of these cards already have hit the market. These cards feature a computer chip or processor embedded in the card itself. This chip houses the cardholder’s financial information related to the account of that card. Experts say the encrypted chip is far more secure than the magnetic strip Americans are accustomed to and is less susceptible to leaks or breaches.

Coming To America

While new to the U.S., chip card technology has been widely adopted in many countries across the globe, primarily in Europe. In these countries, cardholders dip their secure card in a terminal and enter their PINs." In the U.S. it will be a little different as it is "chip and sig" technology -- as opposed to Europe’s "chip and pin." U.S. cardholders will dip their cards into the payment terminals of stores and then be asked to write their signature before removing the card. Another difference is the magnetic strip will still be on the back of cards, so they will be usable by older terminals. Those terminals just won’t be able to take advantage of the security that comes with the chip.

October Mandate

For this technology to be widely practiced, retailers and merchants across the country will need to buy the proper payment terminal hardware to read these new chip cards. Due to a mandate put into effect by Visa and MasterCard, which begins this October, the liability for credit card fraud will shift from card issuers to retailers and merchants. This means that when a fraudulent card transaction occurs, if it is traced back to a leak from a retail store, that store owner will be held responsible and be on the hook for the finances. This could prove quite costly, especially for stores that handle a large amount of card transactions. For example, the 2013 breach of Target resulted in more than 40 million compromised accounts.

POS Opportunity

While store owners may or may not be too happy about this, solution providers in the retail and POS industry should be quite happy. This is a very large opportunity for them as a large market of stores needing to replace their payment terminals has opened up. Distributor ScanSource, which is investing heavily in preparing its partners for this opportunity, estimates that 10 million terminals will be replaced across the country. With each terminal costing between $300 and $500, there is a lot of money up for grabs for solution providers in the POS space. As stores replace their hardware to accept chip cards, solution providers can use this opportunity to present retailers and merchants with the idea of replacing their POS software solutions as well.

Mobile Payments

With this many payment terminals set to be replaced across the U.S., companies such as Apple and Google can use this opportunity to boost adoption of their respective mobile payment platforms, Apple Pay and Google Wallet. Featuring ease of use and digital security, these payment platforms are held back by stores not investing in new terminals with NFC technology. Now, stores across the country need to replace their payment terminals, so it would only make sense for them to get new ones that feature NFC antennas to accept platforms such as Apple Pay and Google Wallet, in addition to accepting chip cards. Due to the October mandate, adoption could rise quickly.