Ready or not, it's credit card chip and dip time: What you need to know

Thursday marks a milestone in the effort to shift the U.S. to the use of microchip-embedded credit cards, a more secure alternative to traditional cards that require the swipe of a magnetic stripe.

But not to worry if your new chip-enabled card has yet to arrive in the mail. The October deadline is more a call to action for retailers than a cutoff, electronic payment experts say.

"That's the date by which if a merchant doesn't have a chip terminal, and a counterfeit card is used at that location, they may be liable for that fraud on that transaction,'' says Stephanie Ericksen, vice president risk products, for Visa. But "we know, based on experience in other countries, it takes several years to get to critical mass. So we're seeing Oct. 1 as more of a kickoff toward increasing the momentum toward chip. People will still be able to use their (cards with) magnetic stripes.''

Chip, or "EMV,'' cards are more secure than those with just a magnetic stripe because they produce a unique code for each transaction, making them harder to counterfeit and preventing the card from being used for future fraudulent purchases.

A huge job to switch

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The electronic payment industry has long called for adoption of such technology, but a series of high-profile data breaches at companies such as Target have underscored the need for more consumer protections.

Coming to a shop near you: Chip and PIN cards

Still, getting tens of millions of new cards in the hands of consumers, and then making sure millions of merchants can process them is a mammoth undertaking. Ericksen says that for nations like Australia, Brazil and Canada, it took two to three years to get to the point that more than 60% to 70% of the transaction volume was being made with chip cards, and four to five years to bump that up to more than 90%. "The U.S. is a much larger market,'' she says.

The Strawhecker Group (TSG), a management consulting company for the payments industry, found in a recent survey that just 27% of merchants in the U.S. will be able to process chip-enabled cards by Oct. 1, down from the 34% that was predicted in March.

"EMV adoption has been slower relative to other countries due to the number of moving parts involved in making this transition,'' Mike Strawhecker, principal at TSG, said in an emailed statement. "For example, there are thousands of banks that need to issue new cards to millions of consumers, millions of merchants that need to get their technology upgraded and staffs trained, as well as thousands of technology providers making changes to their infrastructures and offerings."

Retailers are not happy

But Mallory Duncan, general counsel and senior vice president of the National Retail Federation, says that many of the group's members are "disappointed'' that they are being required to spend what will amount to a cumulative $30 billion to $35 billion on the implementation of new chip readers, though banks and card companies generally have opted for the less-secure option of chip cards that require a signature, rather than a pin. In the U.S., many of the new chip-enabled credit cards require a signature only, and not a PIN.

"We're a little bit between a rock and a hard place,'' Duncan says of the Oct. 1 liability shift. "We're taking a baby step in order for the banks to save money, so that's the concern. ... If you're really serious about reducing fraud, we've known for years that pins greatly reduce fraud.''

Many retailers are instead implementing other systems that they feel will be more effective in blocking hacking. "They will install the chip-reading equipment,'' Duncan says, "but it's less of a priority.''

Still, Ericksen says there's been a great deal of progress. "We're very encouraged by what we're seeing so far,'' she says. "We're exactly where we expected to be. ... It's a lot of infrastructure to upgrade.''

As of Sept 15, more than 314,000 merchant locations in the U.S. were enabled to process chip cards, vs. 55,000 as of last September, Ericksen said in a briefing on the eve of the liability shift. Visa has also dramatically increased the number of chip-enabled cards that it has in the market, going from roughly 20 million at the end of August 2014, to 151.8 million as of mid-September. That represents roughly 21% of all Visa credit and debit cards in the U.S.

Also, the Payments Security Task Force says that roughly 60% of all cards from top issuers will be converted to chip by the end of this year, going to 98% by the end of 2017. Meanwhile, 40% of terminals are expected to be chip enabled by the end of 2015, according to the task force.

With new chip credit cards on way here's what consumers need to know

Effect on consumers

As chip cards, and retailers that can accept them, become ubiquitous, consumers will need to get used to changes at the cash register.

"I think there will be a learning curve for consumers ... because it's a big change in using something that we've been using the same way for decades,'' says Matt Schulz, senior industry analyst for CreditCards.com. "It's not hard. It's just different. ... Instead of swiping the card, you insert the card into the terminal and the card stays in there while you complete the transaction, whether it's signing or entering in a pin. And when the transaction is done, you take the card out of the terminal and go about your business.''

That change, Schulz says, is of concern to some retailers. "Confusion about the use of the new cards is going to make lines longer during the holiday shopping season because the customer might be confused about how it works,'' he says of what some merchants fear. "The employee at the checkout counter might be confused. And you add it all up and you could end up with some frustrated customers.''

Big retailers lead the way

Big retailers have been on the leading edge of the transition. Walmart, for instance, was able to accept chip-enabled cards at all of its locations as of Nov. 1, 2014.

"We've been a leader in pushing for payments that offer more security ... and EMV technology does that,'' says Walmart spokesman Randy Hargrove.

But among smaller businesses, there's more urgency for certain retailers, like jewelry shops, to have updated their technology in time for the October liability shift, than, say, a neighborhood deli that has low-value transactions and repeat customers.

"We want all merchants to move to EMV as quickly as possible because it adds to security ... but most card fraud occurs at electronic stores, (and) high-end luxury retailers where criminals want to use counterfeit cards,'' Ericksen says. "If you're a local coffee shop or nail salon, that's not typically the place we see a lot of counterfeit fraud.''