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  1. Business

New credit card chips will decrease fraud at restaurants, retailers

Credit card companies are borrowing an idea from overseas to help U.S. consumers keep their credit card information safe.

Major U.S. credit card issuers like Visa and MasterCard are installing embedded chips on credit and debit cards after several large data breaches at major retailers like Target and Neiman Marcus significantly increased the risk of credit card fraud. The change, which has already begun, will ramp up in October, at which point the liability for fraudulent transactions made with counterfeit or stolen credit cards will shift from banks to merchants.

The practice of paying by chip is commonplace in Europe, hence the practice is called "EMV," which is short for Europay, MasterCard, Visa. To use the EMV chips, customers no longer have to swipe the magnetic strip on the back of a credit card. Instead consumers will insert cards into a terminal slot, similar to an ATM, or place it on a card reading tray, sort of like when paying by phone through Apple Pay or Google Wallet. Sometimes customers may be prompted to enter a personal identification number.

At restaurants, servers will bring mobile point-of-sale EMV devices to the table.

"I think we are behind in payment methods in the states. The EMV chip is a smart move for security, and it will make the restaurant dining experience much more easygoing," said Brian Connors, a restaurant consultant with Connors Davis Hospitality in South Florida. "Millennials have already embraced the paying by iPad technology. This is the way of the future. It's done on spot, and there's no waiting involved."

Come Oct. 1, the coffee shops, restaurants, retail stores and bars where we spend our money will be responsible if they accept payments from scammers or stolen cards. At this point, it is not clear how the change in liability will be enforced or how it will affect customers who experience fraud.

The new chip in credit and debit cards creates new data every time it's used, making it much harder for scammers to steal personal information. It does not, however, provide this extra protection when making purchases online.

"There are great advantages to this for the customer. For one, they will never have to lose possession of their credit card, which means it will be hard for a server or someone else to steal your information," said Darren Tristano, vice president of Technomic, a Chicago-based food research firm. "But it often requires customers to enter in a tip in front of a server."

For some Tampa Bay merchants, it will be an easy transition. At Buddy Brew Coffee, customers' credit cards are swiped on a Square point-of-sale device, where they can select a tip amount with the touch of a button on a screen. Receipts are then usually emailed to a customer, where they are prompted to review their experience, said Dave Ward, co-owner of the Tampa coffee chain.

Square, a payment processing company, is upgrading its devices to include new chip readers. Ward expects them to arrive at his Tampa area coffee shops soon.

"Personally I bank with the big banks and have my debit card switched out like four times a year because their database has been accessed illegally and there's a risk of fraudulent activity," Ward said. "I think this is a big step forward in securing our personal credit card information, from both standpoints as a business owner and consumer. It's necessary."

Karma Juice Bar & Eatery, a new restaurant in St. Petersburg, is also a Square user. Owner Josie Barber wasn't aware of the new credit card chips coming this year but said it makes sense.

"I'm not computer savvy, but I know most of my customers are. Many of them pay with the same credit card every time and Square saves that info so it tracks their purchases and automatically emails them a receipt every time they come in," Barber said. "The new chip sounds like a very secure way to pay, which is important. Many customers would rather pay by using their phone than credit cards these days for that reason."

Barber doesn't anticipate getting the new chip readers in her store any time soon though. Her juice bar opened just four months ago.

Credit card companies are slowly replacing old customer cards with the new chip embedded technology, but all cards will still have a magnetic stripe to swipe and pay the current way. Merchants are not being forced to upgrade point-of-sale devices to include the chip technology. They just assume greater risk by not doing so.

Other restaurant chains have been early adopters to new and more secure forms of payment. Chili's began installing tableside tablets at restaurants nationwide in 2013. There diners can order and pay from a screen installed at their table. No exchanging of credit cards with a server necessary. Carmel Kitchen, a Tampa Bay-based restaurant chain, has been using iPads as menus and as a way to pay by swipe for years. Urban Brew & BBQ in St. Pete is another iPad user. It's unclear when these restaurants will add new chip card reading technology.

"This shouldn't make a bit of difference in terms of sales for restaurants," said Malcolm Knapp a restaurant economist in New York. "And there's no major change for customers. It's just placing more responsibility on the restaurant."

Contact Justine Griffin at jgriffin@tampabay.com or (727) 893-8467. Follow @SunBizGriffin.

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