By Robin Sidel
GLEN ALLEN, Va.-- Morgan Montgomery inserted a credit card into
a device, pulled it out and tried to pay for her groceries. But the
transaction failed because she didn't realize the card was supposed
to stay in the machine while she signed for the purchase.
"I don't like letting go of it," she said of the card. "I'm
worried about leaving it behind."
Ms. Montgomery, a 30-year-old business owner from Richmond, Va.,
was one of 10 consumers who swiped, dipped, tapped and fiddled
their way through imaginary purchases earlier this month as part of
research being conducted by MasterCard Inc. into new credit cards
that are coming to American wallets in an attempt to combat
fraud.
The push for the new cards is taking on greater urgency
following a number of high-profile data breaches in recent months
that have exposed millions of consumers to potential fraud. Just
last week, grocery chain Supervalu Inc. disclosed that it was
investigating a breach that could affect shoppers at roughly 1,000
supermarkets.
Major lenders, regional banks and credit unions are rolling out
the new cards, which contain a computer chip in addition to the
traditional magnetic strip on the back. Merchants, too, are
installing new terminals at the cash register to accept the
cards.
The Supervalu incident follows a rash of other breaches, from
the massive hack at Target Corp. during last year's holiday
shopping season to smaller ones at restaurant chain P.F. Chang's
China Bistro Inc. and Goodwill Industries International Inc. thrift
stores.
In all, U.S. lenders will issue more than 575 million chip
credit and debit cards by the end of 2015, representing roughly
half of the one billion cards now in circulation, according to an
industry-group projection.
Chip cards have been used widely in Europe, Asia and Canada for
years. But they have been slow to take hold in the U.S., in part
because of a "chicken-and-egg" battle between the card industry and
merchants. Businesses didn't want to invest in new technology until
the card companies issued the plastic to consumers, while the card
companies didn't want to give them to customers until there was a
place where they could be used.
Now, the breaches are making both sides eager to roll them out.
Bank of America Corp., the nation' second-largest credit-card
issuer after J.P. Morgan Chase & Co., and regional lender
SunTrust Banks Inc. are among the institutions now putting chips on
plastic sent to new customers or existing customers whose cards are
expiring.
"By the time we get to holiday shopping, there will be a good
base of chip cards in the market," said Carolyn Balfany, who is
overseeing MasterCard's transition to chip cards.
Merchants, too, are upgrading the computer terminals at the cash
register to accept the new cards. Wal-Mart Stores Inc. is using the
technology at more than 4,600 of its nearly 5,000 stores in the
U.S. and expects to have the rest upgraded by the end of the year,
according to a company spokesman.
Each transaction made with a chip card has a unique code
attached to it, reducing the chance that stolen card data can be
used to make counterfeit plastic. Such cards likely wouldn't have
prevented the hacking at Target, but the card data would have been
useless to thieves, experts say.
U.S. credit-card-fraud losses totaled roughly $18 billion last
year, according to Javelin Strategy & Research, a consulting
firm that is a unit of Greenwich Associates. About a third of those
losses are attributed to the counterfeit cards, according to
consulting firm Aite Group.
The new cards come with changes to the basic way people are
accustomed to paying for purchases. Although the cards still have a
magnetic strip on the back to be used at merchants that haven't
upgraded their technology, the computer chips don't work with a
swipe at the register. Instead, shoppers slide the card into the
bottom of the terminal and leave it there while the purchase is
processed.
"It's going to take some patience and time with the merchants'
staff and the customers that are making the purchases," said Mike
English, executive director for product development at Heartland
Payment Systems Inc. The Princeton, N.J., company, which processes
transactions on behalf of merchants, is training its customers to
use the new equipment.
Some of the new credit cards also may require shoppers to enter
a personal identification number instead of a signature. That was
one of the trickiest changes for Canadians who weren't accustomed
to having a PIN for their credit cards, said Ellen Richey, vice
chairman of risk and public policy at Visa Inc.
"Consumers aren't used to it, they don't remember it and they
don't think they need it. Then all of a sudden, they are at the
cash register and can't remember their PIN," she said.
To ease the way for U.S. consumers, the card industry will be
flooding mailboxes and websites in coming months with information
about how to use the new cards. Some card terminals at the cash
register will prompt shoppers through the transaction process and
issue a series of beeps to remind them to remove the card at the
end.
MasterCard recently tested consumer reaction to the cards at
focus groups in St. Louis and Towson, Md. At the focus group
earlier this month, consumers were escorted into a conference room
to test a number of ways to use a chip card.
Ms. Balfany and a few members of her chip-transition team
watched and took notes on consumers' reaction from the other side
of a two-way mirror.
After answering questions about how they typically pay for
purchases, the consumers were given a chip card and led to two
terminals where they were guided through a series of imaginary
purchases. A few were initially uncertain about where to insert the
card or how long to leave it in the device, but sailed through the
process on the second or third try. Nearly all of them liked a
process in which they tapped the card on the terminal's screen.
Said Jerry Greenway, 67 years old, from Richmond, Va.: "If it
helps make the cards more secure, I'm all for it."
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