Change-over to new chip cards has unanticipated consequences, costs
By Claude Solnik
The Daily Record Newswire
LONG ISLAND - Banks and retailers are getting smarter, rolling out automated teller machines with chips designed to provide more security than magnetic strips.
But in a result you can file under "The price of progress," the shift at least for the moment is also resulting in snafus and unanticipated consequences and costs.
Customers are leaving cards in machines, while some financial institutions refine processes to dispense cards only after transactions.
And in possibly the biggest transition trouble, many retailers that have the ATMs allowing you to "dip" rather than "swipe" haven't installed software for smart cards, leaving customers unsure of what to do.
The technology known as EMV or Europay, MasterCard and Visa uses computer chips that are more difficult to forge than magnetic stripes.
Europe has long used these, while U.S. financial institutions monitored data, looking for unusual transactions as red flags indicating fraud.
Ellen Richey, chief enterprise risk officer at Visa based in Foster City, Calif., believes that "chip technology has the potential to virtually eliminate counterfeit fraud when widely adopted."
The shift, even if it may save money by reducing fraud, comes with costs and complications.
Lisa Sawicki, a spokeswoman for Cherry Hill, N.J.-based TD Bank, said her firm did an ATM "fleet refresh a few years ago" that let it upgrade for chips with a software update.
While big banks deployed chips, that hasn't necessarily been in the cards yet for some smaller banks, "We didn't make the transition in our debit cards yet," Doug Manditch, CEO of Islandia-based Empire National Bank, said. "There's a bit of cost involved and most stores aren't even using the chips yet."
On the most basic level, banks are spending more on producing smart cards: Traditional cards cost $1 to $1.25, while smart cards cost $3 to $4.
"Chip cards are expensive. Depending on the population of cards, that's a really expensive proposition," Walter Arnold, president of HTx Services, a bank technology firm, in Hauppauge, said. "Banks have been trying to migrate chunks over time, to control the cost of the card deployment."
Banks also typically spend between $200 and $1,000 per reader for an ATM, which can add up for banks with thousands of ATMs.
Activating smart card readers in ATMs made by firms such as NCR, Deibold, Hyosung and Wincor, however, is complex.
"That's the easier part," Arnold said of the hardware. "Two other pieces have to happen. You need the software that runs on the ATM and the customer version of the software needs to be written differently."
Smart cards or cards with chips take longer to read than those with magnetic stripes which are swiped and removed, leading to a new problem.
Customers must leave their cards in readers longer, requiring banks and retailers to implement software with instructions about how to use and when to withdraw cards.
"Now you're into a software development piece that is financial-institution centric," Arnold added. "Each institution has to decide how they want that software to work and the experience of the customer."
JPMorgan Chase ATMs ask customers to remove their card before they get cash, while Citibank dispenses cash first and asks that cards be removed before a record is printed.
"Two different institutions have handled it differently," Arnold added "When you're done with your transaction, Citi says on the screen, 'Please remove card.' You hear a loud beeping noise to remind you to take the card out of the card reader."
Many retailers' point of sale terminals are equipped with hardware to take smart cards, but lack the software to do so. Best Buy terminals, for instance, can take the cards, while Stop & Shop's can't.
"You have to buy those terminals, develop software," Arnold said. "Every store, owner and user has to go through it."
Numerous stores have signs warning that their reader is "not active," because the software isn't in place.
"That's the development of the customer experience and processing software," Arnold said. "It's a big expense and a long life cycle. You can't deploy it unless you've tested it well."
Changing habits also is hard: Most people are accustomed to putting their card in their pocket while doing transactions.
"Customers have a tendency to leave cards in the card reader," Arnold said. "This change in process where you leave the card in has caused a customer education problem for banks and retailers."
In addition to smart cards, ATMs also are being equipped to dispense cash in requested denominations, rather than simply spitting out the sum requested.
"This opportunity to go in and say, 'I only want tens or 50s' is a new choice out there," Arnold said. "That allows you to be more flexible."
ATM technology also is advancing to include biometrics using fingerprint and retina scans, although those haven't been widely deployed.
"All of those are out there. People are testing them," Arnold said. "Customer adaptation will be an interesting discussion."
Banks also are testing card-less ATMs, using phones, instead of plastic cards, to identify customers.
"Why do I have to take a card out of my pocket? I have my phone in my hand. How do I use that?" Arnold said customers are asking.
Sawicki, of TD Bank, said her bank is aware that "consumers rely on their smartphones at every intersection of their daily lives."
The bank recently launched a new mobile app with 20 features including TouchID login using fingerprints to log on and letting customers schedule transfers, view transfer history, view check images and statements.
Bank of America last month rolled out technology at 2,400 ATMs nationwide, including nine Long Island locations, letting customers conduct transactions via smart phone.
It equipped ATMs in Elmont, Garden City, Lake Success, Plainview, Port Jefferson, Rockville Centre, Syosset, Valley Stream, and Woodbury.
The firm, which describes itself as "the first bank to begin a broad rollout of the technology," plans to have it available in 5,000 branches by the end of the year.
The system lets customers withdraw cash, make transfers and check balances "using a digital wallet stored on their smartphones."
Customers select the Bank of America debit card in their digital wallet and hold their device over the ATM's contactless card reader to activate the ATM.
In addition to these new features, ATM screens are getting better, allowing banks to project more on them than the messages.
"As you buy newer ATMs, the quality of the screen has increased," Arnold said. "I don't know of anybody that's selling ads. They use this to market themselves."
The big question, at least for now, may be whether cards will be replaced by phones or some other technology.
"I think you'll have cards for the foreseeable future," Arnold added. "That's my personal opinion."
Published: Mon, Aug 08, 2016
