This month, Sam's Club will be the first mass retailer in the country to introduce a credit card with an embedded microchip intended to prevent fraud.
The move comes on the heels of a widespread security breach that gave hackers credit and debit card information for tens of millions of Target shoppers and aims to put Sam's Club out front in the effort to provide customers with more secure payment processing.
All U.S. card-issuers and retailers, including restaurants, are mandated to have the microchip technology in place by October 2015. The technology is known as EMV, for Europay, MasterCard and Visa, which jointly created the global microchipped payment system. If an EMV-enabled card is lost, stolen or compromised in a data breach, the embedded microchip makes the card difficult to counterfeit or copy.
It replaces card-reading capabilities via a magnetic strip and has been available for years in Europe and Asia. U.S. retailers and banks have dragged their feet on it until now.
Hugh Patterson, principal of information technology with DD&F Consulting Group in Columbia, Mo., said the U.S. endeavor is costly, particularly for retailers, which have to provide the infrastructure to accept the cards.
"If Wal-Mart follows suit, then that could pretty much drive the rest of the market in this direction," Patterson said.
The Sam's Club credit card, co-branded by MasterCard and issued by GE Capital Retail Bank, will be available June 23. There's no annual fee for the Sam's Club MasterCard, but membership is required.
Target's brand of EMV-enabled credit and debit cards isn't due out until next year. They'll require customers to enter a personal identification number along with the chip security feature. "Chip-and-PIN" technology, as it's known in the industry, isn't yet available in the United States, said Sam's Club spokesman Tara Raddhol. Users of the new chip-enabled Sam's Club MasterCards will still have to provide a signature for payment but not a PIN.
In April, Wal-Mart Stores Inc. chose MasterCard Inc. to handle transactions for the retailer's store-branded credit cards, ending a nine-year relationship with Discover Financial Services.
Even with the deadline more than a year away, a number of major card-issuers, like CitiBank, already offer EMV-enabled cards to customers.
The Aite Group, an independent research and advisory firm, issued a report recently projecting that 70 percent of all U.S. credit cards and about 41 percent of debit cards -- 1.1 billion cards in total -- will be EMV-enabled by the end of next year.
The cost of loss due to fraud once fell on the banks, but the new system switches responsibility to the retailers, said Bill Holmes, president and CEO of the Arkansas Bankers Association. Merchants who miss the deadline for updating their card-processing equipment could be on the financial hook for fraudulent losses stemming from use of magnetic-stripe cards.
"We're delighted," Holmes said. "We're in favor of it. We would have issued [the EMV-enabled cards] a lot quicker, but for us to issue that card and then not have the equipment when it's presented does no good."
Jason Kincy, marketing director for Arkansas-based Arvest Bank, said Arvest's chip-enabled corporate credit cards and purchasing cards will begin being issued in July as existing cards expire. Consumer credit cards will begin being issued by the bank by the end of this year. Issuing of new debit cards will begin next year, he said.
The new cards will cost more, but Arvest is glad to eat the difference if it means fewer instances of theft down the road, he said.
"Additional costs of EMV-enabled cards should not result in a trickle-down cost to the customer," Kincy said. "Issuers should see reduced losses due to fraud, which would help make up for the added expense of the cards."
Smaller businesses, such as independently owned convenience stores and drugstores, bear the brunt of cost on the mandate, Patterson said.
"If you're a small mom-and-pop retailer and you cannot or don't want to spend the money on a new terminal to accept these cards, then you're going to have to figure out some other way to accept them," he said. "What will end up happening is it'll be included in the cost of the goods they sell."
Holmes said the microchipped cards may be able to halt some, but not all, opportunities for hackers. The chips won't be of help for online purchases or shopping by phone.
Shep Hyken of St. Louis, a customer service expert and consultant, said he thinks the best companies are doing what's right by putting safeguards in place.
"I think anything proactive will make a customer feel safer," Hyken said. "That said, this is just another door that's being locked, only to be opened by cybercriminals.
"They're going to figure out ways to get around it," Hyken said.
Business on 06/13/2014