Correction: Wal-Mart Stores Inc. has been installing credit card computer chip technology in its stores’ check-out lines for about nine years. It began activating the technology Nov. 1 last year. This article incorrectly described the changes.
Banks in Arkansas that issue credit cards are spending thousands of dollars to fund computer chip technology that promises to cut down on theft.
Retailers are also hurrying to install the technology by an Oct. 1 deadline set by MasterCard, Visa and other card brands.
The new cards include an square computer chip embedded on the front of the card, said Curtis Arnold, founder of CardRatings.com and BestPrepaidDebitCards.com and author of How You Can Profit From Credit Cards. Arnold sold CardRatings.com to online marketer QuinStreet Inc. of Foster City, Calif., in 2008.
"Instead of swiping your card, you insert your card and leave it in for a few seconds," Arnold said.
The credit card processing device sends a code for that transaction to the card issuer, he said.
The chip technology, available to consumers outside the United States for years, is designed to lessen the likelihood of hackers committing identity theft.
"Arkansas banks will bear some of the costs," Arnold said. "They will have to reissue their cards [with the new technology].
The cost of the new technology chip cards ranges between $1 and $4 per card, a Congressional Research Service report said. That compares to about 25 cents for cards with only magnetic swipe technology.
The chips create one-time codes that validate transactions. On current cards the magnetic stripe is encoded with data that never changes, making it easier for criminals to duplicate a card.
Arvest Bank of Fayetteville will be reissuing about 750,000 debit cards and about 50,000 credit cards with the new chip technology, said Jason Kincy, an Arvest spokesman.
The new technology should help prevent credit card security breaches such as ones at Target and Home Depot last year, said Larry Bates, executive vice president for specialty lending at Simmons First National Bank in Pine Bluff.
But the new system is not foolproof, Arnold said. The system has a wireless component to it, he said.
"And anytime you have wireless, there is a way to hack it," he said.
Javelin Strategy & Research of Pleasanton, Calif., estimates that up to 75 percent of retailers may not implement the chip card technology by Oct. 1, a deadline set by by major U.S. credit card companies.
Merchants and card issuers that have not upgraded by Oct. 1 will be liable in hacking incidents. Currently the liability falls on the payment processor or issuing bank.
"The majority of small merchants are not only not ready for [chip technology], they are not even aware of [chip technology]," Nick Holland of Javelin told the American Banker.
The National Retail Federation estimates that the cost for retailers nationwide to update to the chip technology could be $25 billion to $30 billion.
"There is no doubt that consumers will end up bearing the brunt of the costs, because the costs of banks or retailers will be passed on to consumers," Arnold said.
Some stores offer card readers for small retailers for $99 each, which isn't expensive, Arnold said. One vendor is offering card readers for free to merchants in its network, Arnold said.
"Conventional wisdom would say that the smaller businesses would be the most affected," Arnold said. "But with these $99 and free card readers [for small retailers], it almost seems like the big retailers may bear the brunt [of most of the costs]."
Wal-Mart has had credit card processing devices for the chip technology installed in some of its stores for almost nine years, said Randy Hargrove, a Wal-Mart spokesman.
"We have international operations and certainly in international countries the chip cards have been around for years," Hargrove said. "Eventually we believed that it was going to go that way in the U.S."
For the past few years, Wal-Mart has had chip technology available in a small number of stores that receive a greater concentration of international travelers, such as Miami, Orlando and stores on the Canadian border, Hargrove said.
Wal-Mart installed the chip technology in all its stores last year, Hargrove said.
Part of the reason for turning on the chip technology was the introduction of chip-enabled Sam's Club and Wal-Mart branded cards issued last summer, Hargrove said.
"With those coming out, we made the decision to turn all our terminals on on Nov. 1," Hargrove said.
Wal-Mart hasn't disclosed how many purchases using chip technology have been handled at their stores.
Wal-Mart has more than 3,400 Supercenters in the United States. With about 30 checkout locations in each store, according to Hargrove, Wal-Mart has more than 100,000 point of sale locations with the technology. That doesn't include the credit card processing devices at about 460 Wal-Mart Discount Stores, 600 Neighborhood Markets and almost 650 Sam's Clubs.
The conversion won't be very expensive for Fayetteville-based Slim Chickens, a 12-year-old restaurant chain.
Slim Chickens outsources its point-of-sale technology and its vendor will handle the conversion, said Seth Jensen, the firm's chief financial officer.
"The reality is we knew that there are companies out there that do a better job of understanding what compliance looks like than what our focus is," Jensen said.
There will be some new hardware Slim Chickens will have to install, but the firm doesn't expect that to be much of a problem, said Marshall Alexander, controller for the restaurant chain, which has 10 corporate stores and 11 franchise stores and expects to add 10 more by the end of the year.
It should take less than a week for Slim Chickens to install the new technology in all its stores, Jensen said.
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