I'd go with bad UI/UX.
A lot of progress has been made by acknowledging that people are idiots and that the system has to work around that. Toyota, which went from one of the worst to one the most reliable automaker is known for formalizing idiot-proofing.
If the reader was able to read the card both way, there wouldn't have been a problem and no training required. The next best thing would be for the card to not fit upside down. Or have a clear message "try flipping the card". It is not something you should train people for, it should be obvious.
I also suspect the reader was in an unusual configuration, because everyone knows how to use smart cards and they probably did what they always do instinctively and it didn't work. On the thousands of times I did it, I don't remember having ever inserted my credit card the wrong way and don't remember anyone who did, it is just so instinctive. For an entire team to miss that, there must be something wrong with how the reader is set up.
Agree.
The fundamental lesson of at least half my information systems undergraduate courses was you adapt the system to observed user behavior, do not expect the user to adapt their behavior to the system.
If it's not obvious to multiple Google SREs and no instruction sticker was present, that's a bad UI.