If you haven’t heard about chip cards, get ready for information overload. People are starting to receive chip cards from their credit card issuers and it is estimated that some 575 million new chip cards will be in the hands of U.S. consumers by year-end, according to Visa.
While the U.S. is revving up for change, chip cards are old news in Europe. What’s so good about chip cards? Simply put, safety, security, supposedly.
What You Need to Know
EMV (Europay, MasterCard and Visa) cards, or chip cards, include a chip that reduces the risk of fraud. With the chip, each transaction has an unique code assigned to it, unlike the magnetic stripe that contains unchanged data that can easily be replicated. "If someone were to steal the information from a magnetic stripe, the data could be replicated over and over again," says Wade Barnes, senior vice president and director of retail banking at 1st Mariner Bank. However, if a fraudster stole chip card information, duplicating the transaction would never work because the unique code can only be used once, he says.
You don’t need to worry about making the change to EMV cards, as card providers and merchants are responsible for making the change. If your card provider is opting to switch over to the EMV compatible system, you will automatically receive a new debit or credit card in the mail. It is the card providers’ responsibility to make the choice whether their customers are going to have EMV compatible cards, which many already have or plan to do. Likewise, it is the merchant’s responsibility to shift to EMV compatible payment terminals, says Barnes.
Furthermore, the only significant adjustment you will have to make in the EMV card transaction is the way you perform transactions. With magnetic strip cards, transactions would occur through a swiping motion on the payment terminals. With chip cards, you will insert your card into the terminal so that the machine can read the chip.
Overall, the biggest benefit of chip card technology is that they are more secure than a magstripe transaction, says Trevor Mast, senior vice president, Financial Services Products at FIS. As of next month, businesses that don’t accept chip card transactions may be responsible for any counterfeit fraud, which should help promote and encourage adoption of the new technology.
Is it safe to sleep at night?
There is no such thing as 100% safe. Furthermore, since most of the chip credit cards issued in the U.S. will be chip and signature, versus chip and PIN, the second layer of PIN security will be non-existent, which could potentially leave lost or stolen cards open to fraudulent activity, says Mast.
While chip cards will be helpful over time in the fight against fraud and generate substantial expensive saving, "They are by no means a panacea," says Trevor Knott, vice president of service at Saylent.
As long as cards continue to include the magnetic stripe, banks and retailers need to continue to invest in anti-skimming technologies to protect consumer data and their financial interests, points out Owen Wild, global marketing director for Security at NCR.
Although the new EMV chip credit cards will likely reduce credit card fraud at brick and mortar stores, it is likely that online credit card fraud will dramatically increase, as was the experience in the United Kingdom, where online credit card fraud went up 79% in the three years following the switch to EMV chip credit cards, reports attorney Steven J.J. Weisman.
Chip cards are not better at protecting individuals against card-not-present (CNP) fraud, says Robert Harrow, a research analyst with Value Penguin. "This is the type of fraud that occurs when thieves use the card online, or in other ways where they are not required to present the physical card to a merchant – instead simply giving the number and its security code. CNP fraud is on the rise globally, including the U.S. Unfortunately, this new technology doesn’t do anything to combat it."
Expect too, to wait longer in checkout lines at the terminals when using your credit cards, due to the extra time to process the information on the card through the EMV chip. "From a consumer standpoint to stand there for an extra minute is probably a little annoying," says Justin Friedberg, co-founder of Match Point Payment Solutions.
Mostly, experts are confident that the transition to chip cards, "will choke a lot of life out of card fraudsters," says security expert Robert Siciliano. But it won’t come cheap, the transition is expected to cost about $8 billion, if done correctly, he says. And, the "roll-out phase" won’t happen overnight either."