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NRF Asserts the Card Industry Has Dropped the Ball.

WASHINGTON -- Delays by the card industry have left thousands of new chip readers unused and consumers with less improvement in security than what was sought by merchants, the National Retail Federation (NRF) asserted on the one-year anniversary of the deadline for retailers to accept new chip-based credit and debit cards.

"Most major retailers have done their part, but the card industry continues to drop the ball," said Mallory Duncan, senior vice president and general counsel for the NRF.

Retailers have swiftly adopted the payment standard, known as EMV (Europay, MasterCard and Visa), Duncan said. Since October 1,2015, retailers that cannot accept chip cards have had to shoulder the cost of fraudulent purchases, and banks have not been shy about passing along the bill. Many retailers have expressed frustration with delays in the process of getting certification for equipment they purchased to comply with the new standard. To get certified, businesses work with payment processors such as First Data and Vantiv.

"Retailers have spent billions of dollars to install the new equipment but card companies have failed to sign off on the installations in a timely manner. Many retailers have had new chip card readers sitting next to their cash registers for a year waiting for the card companies' blessing. We wish they cared as much about security as we do," Duncan said. "This is frustrating for retailers and confusing for consumers. Worst of all, the new cards provide just a fraction of the security they could because they are only chip-and-signature rather than the chip-and-PIN used throughout the rest of the industrialized world. Without a secret PIN, virtually any illegible scrawl of a signature is good enough for a criminal to use an innocent person's credit card with or without a chip."

Since EMV is intended to ensure that the card is not counterfeit but does not directly protect card data itself, retailers are working on other steps that protect card data when it is being transmitted between the retailer and card processor or stored in retailers' computer systems. Retailers are doing their part to deploy tokenization, encryption and other technologies that make it difficult to steal card data in the first place, Duncan said.

More than 700 million chip cards have been issued, and payment networks report that counterfeit card fraud has been cut in half among merchants using chip card readers, according to the American Bankers Association (ABA).

While EMV cards have proven successful at curbing point-of-sale fraud, the banking industry said, online fraud is up 12% in the past year. "To be effective in this area, banks, card issuers and merchants must look beyond static passwords and PINs and employ a wider range of countermeasures, including tokenization, end-to-end encryption and biometrics," said Jess Sharp, senior vice president at ABA.

A recent survey of NRF members found that 86% of retailers plan to have the EMV chip card technology fully implemented by the end of 2016. Of those who do not yet have EMV in operation, 57% said they had already installed the equipment but were waiting for certification by the card industry so they could turn it on.

In some cases, retailers are being hit with an increase in chargebacks for fraudulent transactions blamed on the lack of EMV acceptance, even though new chip readers are in place waiting for certification, the NRF said.

When asked to name their top three payment challenges of the past year, 76% of retailers surveyed cited EMV as the top contender and 46% cited charge-back issues often related to EMV, according to the NRF. Another 37% pointed to implementation of security efforts such as encryption and tokenization.

Chip card transactions that take more than five seconds to be completed jeopardize a shopper's loyalty to a retail brand, according to a report issued last month by Cayan, a payment technology company.

"The clear shopper frustration with chip card technology is going to create significant hurdles for retailers this holiday season, as many retailers have already begun locking down their systems as we move toward the holidays," said Henry Helgeson, Cayan's cofounder and chief executive officer. "Though retailers could curb long lines and frustrated customers by adding employees, aisles, space, etc., those are large investments many want to avoid. The real answer is working to subtract time from the transaction time --something processors around the country are working hard right now to do."

Transactions with chip cards are slower than cards using a traditional magnetic stripe or with a mobile wallet such as Apple Pay. That's because when the card is dipped into the reader, the chip generates a one-time code, which is sent to the bank over a network. The bank confirms the code and sends verification back to the terminal.

Slow chip card transactions will drive more than half of Americans ages 18 to 34 to mobile payment options, Cayan asserted in its report.

Last year, just 0.2% of in-store sales were made with phones, according to a survey by eMarketer, a research firm.
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Title Annotation:OPINION
Date:Oct 31, 2016
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