Excruciating New Credit Cards Finally Give Apple Pay a Problem to Solve
If you want high comedy, try buying something at my local drugstore.
As you wait in line with your razor blades and Softsoap, some other poor soul will swipe their credit card through the reader on the counter—and nothing will happen, because it’s one of those new chip cards designed for better security. Then, a (slightly exasperated) cashier will tell this poor soul to push the card into a slot at the front of the reader. The poor soul will do this—and nothing will happen again, because the new chip tech is horribly slow.
Just when it looks like the reader is about to die—strange pixelations appearing on the screen—a legible message will finally appear, asking the poor soul to approve the transaction—and nothing will happen yet again, because the new chip tech is even slower than anyone remembers. Then the reader will start honking like an air-raid siren, as if something has gone horribly wrong. But eventually, the poor soul realizes the siren is trying to tell her it’s time to remove the card.
And that’s the simple scenario. The complicated scenario is when the poor soul takes the card out before the siren sounds and the reader crashes the entire register. Then you’re all stuck in line for another ten minutes. Or more.
My local drugstore is a CVS, and the card readers are made by a company called Verifone. But all this sorrow is only partly their fault. The problem also lies with the new chip technology itself. The big-name credit card companies are forcing stores across the country to adopt this “EMV” tech (short for Europay, MasterCard, and Visa), and at best, it’s noticeably slower than paying with a good old fashioned magnetic stripe card. At worst, you’re stuck in line at CVS for ten minutes with your razor blades and Softsoap while some sort of archaic cash register reboots itself.
The irony is that we’re supposed to be living in a period of great innovation for the payments industry, what with services like Apple Pay and Android Pay, which let you instantly pay for stuff with your smartphone. In fact, most of the new chip card readers can also handle the near-field-communication, or NFC, technology used by Apple Pay and Android Pay. But, well, most of us still rely on cards. That’s what we’re used to.
We are slaves to inertia. But perhaps there’s hope—perhaps the seeds of an NFC revolution lie in the high comedy of that line at my local CVS. Perhaps it finally gives us a reason to switch.
The Big Switch
Not so long ago, if someone used a stolen credit card to make a purchase and got caught, the credit card companies would eat the cost of the fraud. That changed on October 1, when MasterCard, Visa, Discover, and American Express shifted responsibility onto stores and banks that hadn’t made the switch to the new (and ostensibly more secure) EMV chip technology. The popular press portrayed this as the “deadline” for the move to EMV. But it was really more of a start than a finish. Another two or three years will pass before everyone makes the switch.
“The liability shift happened, and then it became a business decision for business. They could decide how they want to manage their risk,” says Randy Vanderhoof, the director EMV Migration Forum, an independent body overseeing the transition.
Still, major banks have now issued chip cards in large numbers. Vanderhoof says that about 50 percent of the cards in circulation include an EMV chip. And about 37 percent of US merchants can now accept these cards, according to a research operation called The Strawhecker Group. Here in the San Francisco Bay Area, they’re ubiquitous at large chains, from CVS and Walgreen’s to Whole Foods and Target. And thanks to Square, the San Francisco startup founded by the guy who also founded Twitter, they’re now showing up in smaller operations too. Square offers both an chip card reader and a traditional mag-stripe reader, and merchants can use both through phones, tablets, and those slim Square cash registers.
But that’s not all. Most chip card readers can also handle smartphone payments. Square’s newest readers, for instance, work with both Apple Pay and Android Pay. And that could be a powerful thing. Maybe. After a while. I hope.
Behind at the Counter
Inside the Philz coffee shop at the corner of 9th Street and Gilman Street in Berkeley, California, you’ll find a credit-card reader from Square. Actually, you’ll find two credit-card readers from Square—one that reads traditional cards, and one that reads the new chip cards.
Earlier this week, after ordering a coffee and a pastry, I handed my Citibank chip card to the woman behind the counter, and she slipped it into the chip reader. Several seconds later, she handed it back, and I asked how she liked using the new reader alongside the old reader, slipping chip cards into one and swiping ordinary mag-stripe cards through the other. It was fine, she said—though the new chip reader took a few seconds longer, and that could add up during the morning rush. So I asked if the new reader was quicker when people paid with their phones. But that didn’t make sense to her. The new reader, she said, doesn’t work with phones.
Yes, it does work with phones. But her response makes this Philz a living symbol of the US payments industry as a whole. The new chip card readers are here, provided by Square and so many others. But they’re a little slower—or, in the case of some readers, a complete mess. And across American coffee shops and drugstores and grocery stores, we’re still using these new readers alongside traditional mag-stripe readers, which are quite a long way from obsolescence.
The good news is that smartphone services like Apple Pay can reduce all the new friction introduced by chip cards—if people begin to realize they exist.
Finding a Problem to Solve
The idea of using NFC phones to pay at the checkout counter received a big boost in the fall of 2014 when Apple unveiled Apple Pay with the cooperation of a trio of big-name credit card companies. This meant not only that Apple Pay would be available on the newest iPhones, but that Apple would put its considerable corporate weight behind the service.
Still, even the Apple name can take an idea only so far. According to a recent study of people who carried phones equipped for Apple Pay, only one in five had even tried the new payments service.
Apple said that on the day it launched, Apple Pay would be accepted by 220,000 stores worldwide (mostly stores that already accepted NFC payments from Google Wallet and other existing services). But NFC still suffers from a kind of chicken-and-egg problem. We’ve yet to reach critical mass among consumers or in stores.
But some look at that high comedy in my local drugstore and they see an opportunity for NFC. This includes the people who make the chip readers.
The Theoretical Limit
Erik Vlugt, vice president of global products for Verifone, acknowledges that there are can be issues with new EMV readers. And he says these tend to smooth out over time, pointing out that other parts of the world now take chip cards for granted. But he also says that EMV can serve as a “catalyst” for the rise of NFC. Jesse Dorogusker, who oversees hardware at Square, agrees.
Sure, Dorogusker boasts that the new Square reader is pretty good at reading chip cards. Whereas some chip card readers are big and black and clunky and confusing, the Square reader is small and white and simple. You slide your card in, and when it’s done reading the card, four green LEDs light up. That’s pretty much it, though there are cases where you’ll have to provide a signature via a phone or a tablet or a Square register that connects to the reader. But as the women behind the counter at Philz said, the process is still a little slow. That’s just the reality of EMV.
According to Dorogusker, he and his team have reduced the new Square reader’s EMV transactions down to about 6 or 7 seconds (which is pretty close to the claim by the woman behind the counter at Philz). “I don’t know if that’s the theoretical limit,” he says, “but it’s close.”
With Apple Pay and Android Pay, payments are much faster. Basically, you link these services to your credit card account and then you make payments by holding your phone up to a compatible reader. This kind of tech has been around for ages, and though it has never really caught on with everyday consumers—with some pundits calling it was a solution in need of a problem—the EMV switch had provided it with a very real problem that it can fix.
Though that woman behind the counter at Philz didn’t quite realize it, the coffee shop’s Square reader does handle both chip cards and smartphone payments. And the same goes for readers at CVS. As they upgrade to EMV readers, so many stores are choosing devices that handle NFC as well. Verifone estimates that about 40 percent of card readers in the US can now handle EMV, and nearly as many can handle NFC.
According to Dorogusker, stores have ordered about 350,000 of the new Square readers. That’s a small slice of the market. But Square is mostly built to serve the small guys. And earlier this month, the company announced that these readers would be available for purchase from, yes, Apple retail stores. Here in the San Francisco Bay Area, they’re available at places like Blue Bottle Coffee and Boba Guys milk tea bars as well as Philz.
As a chip reader, it works fine. But it works even better a smartphone reader. Yesterday, I went back to the same Philz. A different woman was behind the counter, and I asked if I could pay with my phone. “It might not work,” she said, “but you could try.” So I did, and it worked. “Wow,” she said, doing a little cheer for herself, “I did an order with Apple Pay.” Actually, it was Android Pay. But you get the idea. Or, if I’m ever standing behind you in a line at my local drug store, I hope you do.
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