Chip-enabled credit and debit cards (also known as EMV cards) are slowly making their way into purses and wallets of consumers across the U.S. as merchants are scrambling to install terminals and new software to process the presumably more secure card payments. But there is growing concern among key investment and retail leaders that the introduction of the new cards may lead to consumer confusion, merchant panic, and a potentially serious meltdown when the busiest shopping day of the year arrives one month from now.
The whole debate was ignited anew when Vinod Khosla, founder of Khosla Ventures, kicked off the Money 20/20 conference on Sunday by characterizing the U.S. introduction of the chip cards as “screwed up” during his appearance at the gathering of major financial technology executives in Las Vegas. “All these backroom boys agreed on something and missed one thing – what the consumer wants to do,” said Khosla.
His remarks were echoed a day later during a panel discussion at the conference when John Drechny, senior director of payment services for Walmart, was harshly critical of the timing of the rollout and its impact on consumers. “I give us an ‘F’ in terms of putting the customer first,” said Drechny.
The Walmart executive based his grade in part on the timing of the mandatory conversion which began on October 1st, barely two months before the busy holiday shopping season. “We’re going to go through the holiday with a lot of bad experiences,” Drechny warned.
He was joined on the panel by Jennifer Miles who oversees Verifone’s business in North America. Verifone is one of the world’s largest providers of merchant payment terminals and transaction solutions. In yesterday’s discussion, it was noted that some merchants have disabled the “swipe” function on terminals if the device senses a chip card. Others have installed payment machines that can accept EMV cards, but not yet upgraded the software allowing them to work. This uncertainty among consumers over which form of payment to use could lead to long lines at checkout counters in the coming weeks as the shopping season kicks into high gear.
“The perfect storm is going to be Black Friday,” said Miles, referring to the day after Thanksgiving in the U.S. when consumers traditionally flock to retail outlets across the country.
There’s another black cloud on the horizon for merchants as well. Since October 1st, the liability for fraud and chargebacks (disputed card payments) shifted from the card issuers to merchants. These costs are generally reported on a monthly basis, so many merchants in non-compliance will begin receiving liability notices next month for the first time.
“Merchants may be getting information that will be a little bit of a surprise,” said Miles.
Despite the criticism, other industry leaders believe that chip card conversion will ultimately be successful, although full compliance may take a while. “I believe we are in pretty good shape,” said Nicole Carroll, head of emerging and advanced payments for Discover Financial Services, who pointed out that the current situation was similar to the “Year 2000 Problem” (Y2K) when concerns that older computer code could result in a global meltdown proved vastly overrated.
In a separate interview for this story, Jason Oxman, CEO of the Electronic Transactions Association (ETA), cited low-cost options for merchants to upgrade their payment terminal hardware as a way to speed compliance. He noted that Square, the mobile payment company, has introduced a chip card reader which can also handle near field communication (NFC) transactions using smartphones for $49. “The actual cost to upgrade can be very low,” said Oxman.
Square’s decision to combine chip reading with NFC technology is important because a number of financial executives expressed belief during Money 20/20 that future consumer payments will soon only require that a card be waved over a device, rendering the chip card obsolete. Khosla said as much in his blunt remarks on Sunday and Jud Linville, the CEO of Citi Cards for Citigroup, agreed as well during an appearance at the conference yesterday afternoon. “EMV is not the ultimate solution,” said Linville.
In his keynote remarks earlier today, Dan Schulman, CEO of PayPal, challenged the financial community to address the problem of meeting the needs of people outside of the system. “Billions of humans are poorly served by our industry,” said Schulman. “And money is incredibly personal.” As the rollout of chip cards continues down its shaky path, we may be about to find out just how personal it can be.