With mixed success, the Smart Card Alliance—a consortium of credit card issuers—has been badgering retailers into upgrading their point-of-sale (PoS) systems in order to support smart cards, which incorporate a processor designed to cut down on the number of fraudulent transactions being generated using older credit cards that relied on magnetic strips.
Many retailers, however, balked at adding support for these chip-enabled cards because of the cost of upgrading the PoS systems. The Smart Card Alliance warned retailers that banks would hold them liable for any fraudulent transactions that occurred after the October deadline. Now that shoe has finally dropped in the form of a class action lawsuit being opened against the fast-food chain Wendy’s by First Choice Credit Union.
Last January, Wendy’s revealed that hackers had been able to make thousands of fraudulent transactions using various debit and credit cards issued by a number of banks. Not too long after that, individuals who found their card cards had been compromised began to file suits for damages. As a class-action lawsuit, the First Choice Credit Union suit is seeking to roll all those claims up into a single suit that seeks to force Wendy’s to pay damages that would be substantially higher if the fast food chain is found to have been willfully negligent.
A warning to other retailers
It might take years for the courts to settle this issue, and a deadline set by the Smart Card Alliance may not have much legal standing. For that matter, a court could rule that card issuers can simply decide that retailers are liable for anything relating to how the credit cards they issue are used.
But other retailers that have been slow to embrace EMV cards are sure to take note. That means many of them are now looking for some additional IT services expertise to help them make the EMV transition if for no reason than to avoid the costs and risks associated with a class-action lawsuit.
Like most of these cases, the class action lawsuit against Wendy’s will probably be settled out of court. In the meantime, though, retailers all across the U.S. are also waiting for credit card issuers to improve the overall performance of EMV transactions. Many retailers are complaining that processing EMV transactions simply takes too long.
Of course, cards with chips have been widely used in other countries for years. Financial services organization routinely note that the level of fraudulent credit card transactions that occur in those countries is a fraction of what occurs in the U.S. Nevertheless, the financial services companies that issue these cards could have relied more on carrots than a stick to entice more retailers to upgrade their PoS system. After all, if companies the size of Wendy’s balked at implementing EMV cards, IT service providers can assume that the majority of small businesses have similar issues.
The good news, at least from the perspective of IT service providers, is that many of those retailers are now more likely to be willing to fund those point of sale upgrades , albeit grudgingly.