Smart Card Transition Catches Some Businesses By Surprise

By Patricia Sabatini
Pittsburgh Post-Gazette.


Liz Moore has lots to worry about as she juggles the many duties necessary to keep her popular downtown lunch counter, Bluebird Kitchen, running at a perfect simmer.

This fall, Moore has one more thing to add to her worry list: a looming deadline for accepting chip-enabled smart cards that has caught her and many other small business owners unaware and unprepared.

“I didn’t know about (the upcoming deadline) until you called me,” Moore said to the Pittsburgh Post-Gazette. “I had no idea. No idea.”

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.

Moore, who estimates 80 percent of her customers pay with a credit card at her two downtown locations, suspects payment processors have been focused on helping big retailers with the changes, leaving smaller merchants on their own.

With just less than six weeks until the October deadline, “I have not had any communications from my credit card processing company about this,” she said. “I guess I’ll have to look into this.”

Moore is far from alone. 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.

“Oh wow. Oh my,” Mike Roth, general manager of Rivertowne restaurant, said when asked about the smart card deadline. “I’ve never heard about this.”

Roth said he expected the restaurant’s payment processor would have reached out to him by now.

“When you have to spend more money, no one wants to notify you,” he said.

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 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.

At Bluebird Kitchen, where current card readers are affixed to the cash registers, Moore is guessing she’ll need to invest in stand-alone units in order to upgrade.

“The readers don’t seem to be too expensive,” she said. “A few hundred dollars each.”

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.

Vanderhoof said consumers who want a smart card right away often can get one sooner by calling their bank and requesting one.

Jim Schuster, owner of Crystal River Gems, a downtown seller of rocks, crystals and art, will be ready to meet the conversion deadline.

About six months ago, vaguely aware the switch was coming, he needed a new card reader and opted for a more expensive unit that processes smart cards vs. buying a cheaper older model.

Schuster thinks awareness campaigns for small businesses will ramp up closer to the October deadline.

“If they tell (small business owners) something too far ahead, they forget it,” he said.

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