The sweeping change from magnetic strip cards to chip cards has brought about some expected, as well as unexpected, changes.  We wrote about chip cards last October (read it here), detailing some of the benefits and risks behind the change.

While the chip card is designed to protect consumer information and minimize fraud, it seems that the downside for merchants is greater than expected. According to Olga Kharif (Bloomberg) in her article “Chip Cards Slap U.S. Merchants with Unexpected Higher Fees”, just since October some merchants are already seeing a nearly 20% increase in debit transaction fees.

In addition to increased fees, increased fraud liabilities for merchants, and as much as a $600 price tag for required new payment terminals, it turns out that nearly 2/3 of the new readers are incorrectly installed.  This is causing the readers to favor debit payment networks from Visa and MasterCard, rather than other possibly less expensive systems.

The result is increased fees for business owners (mostly small to midsize business owners), fees which could be as much as $7,000 for one small business owner, who is quoted in the article.  But even the world’s largest retailer, Wal-mart, has filed a complaint in New York regarding the questionable processing practice, stating, “Visa stands to make more money processing those transactions.” 

While consumers may not care about added costs to merchants, they should, because if it costs merchants (whether small businesses or Wal-mart) more money, it costs everybody more money.