Target Is Back on the Chip-Based Credit-Card Technology Train


In the wake of the large-scale security breach suffered by Target Corp. (NYSE:TGT) over the holiday season, the No. 3 U.S. retailer is showing signs of a renewed readiness to adopt chip-based credit-card technology that better protects shoppers. Many stores and retailers in Europe and Canada already use chip-based credit cards – those with a smart chip in the card that works with special readers installed at stores — but the U.S. has been slower to adopt the technology, and surprisingly, some of that blame is on Target.

The Wall St Journal elucidated in a report Monday that Target has contributed to the delay in progress on chip cards in the U.S. because it, along with its fellow retailers, have been unable to compromise with the financial industry over card-swipe fees and other issues. Back in 2004, executives in Target’s credit-card division worked to jumpstart a 3-year program involving chip-based credit cards, but the retailer’s executives responsible for store operations and merchandising ultimately halted the program on account of worry that the technology would slow checkout speeds and didn’t offer sufficient marketing benefits.

CEO Gregg Steinhafel was one of the executives part of that the anti-cards camp a decade ago, but now, the chief executive appears to be more in favor of the cards. He said during an interview on January 13 in regards to the mass adoption of chip cards that, “I think we’re ready to move.”

The Journal reported Monday that chip advocates were disappointed in 2004 when Target decided to end its three-year effort to roll out smart cards because many believe that the U.S. is now purposefully targeted for criminal hacks on account of its position as one of the last remaining developed countries to not take advantage of the technology. Advocates hoped that Target’s $40-million program in 2004 would set the stage for the cards’ widespread adoption in the U.S., but after the retailer stopped the program, all progress stalled, and now retailers and banks continue to find themselves in a chicken-and-egg dilemma where they can’t agree on funding and the necessary investment to install such new infrastructure.

Despite the delay, though, the recent round of breaches suffered by Target and Neiman Marcus seem to finally be breathing life into the chip-based technology, and Target, along with other U.S. retailers, are showing a readiness to compromise with financial institutions to adopt the new system. The Journal reports that some U.S. retailers are now rolling out chip-ready machines in normal upgrades of their point-of-sale systems, and chief executive Steinhafel is calling on retailers and banks to prepare to adopt chip-based credit-card technology to better protect shoppers.

Banks, too, are showing a willingness to compromise, as James Dimon, CEO of J.P.Morgan Chase (NYSE:JPM), said last week on an earnings call that, “All of us have a common interest in being protected, so this might be a chance for retailers and banks to for once work together, as opposed to sue each other like we’ve been doing the last decade.” It is thus clear that both banks and retailers are starting to recognize the need for a industry-wide adoption of new technology despite the rise in funding, and if they can’t compromise, they have to acknowledge that only more breaches will be on the way.

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