Don’t be a day late and a chip credit card short. In October 2015, the chip credit card revolution will take a major step forward in the United States, and consumers and businesses of every size need to be informed and prepared. The smart card, chip card, smart-chip card, chip-enabled smart card or simply the EMV card … just a few of the names you may have heard that describe the new computer-chip standard for credit and debit cards. The EMV (Europay, MasterCard and Visa) system was developed in response to out-of-control fraud worldwide.
To help prepare for this key development, we spoke with senior vice president at Landmark Bank, Bryan Jones, and uncovered some surprising facts that consumers need to know. Basically, Bryan encourages everyone to have at least one chip card in his or her wallet as close to October 1 as possible, and here’s why.
1. Chip-and-pin card shopping is much safer.
While the United States makes up a majority of the world’s card-processed transactions, it has been working with the least secure technology. In fact, the United States is the last major market still using magnetic-strip cards. As a result, fraud in this country has doubled in recent years as thieves have left countries that have the chip system in place.
The chip card is safer than its predecessor, the magnetic-strip card, because information shared during a magnetic-strip card transaction is always the same and can easily be replicated. With the EMV card, each purchase creates a new transaction code that cannot be used again. Thus, even if someone takes your card information, the unique code generated for the previous purchase will not be valid for future purchases, and using the information should void future use. You may not need to sign a receipt when you check out with your chip debit or credit card, as a pin number may replace the signature.
2. More and more merchants will have the chip-card technology as October approaches.
As attorney David W. Adams states in “The Hidden Cost of Chips,” “The United States is not completely lacking this technology, as many banks have already begun issuing chip-and-pin cards and some merchants, including Walmart, have updated to EMV technology.”
Major U.S. credit card issuers MasterCard, Visa, Discover and American Express created an October 1, 2015, deadline for liability related to card-present fraud (“8 FAQs About EMV Credit Cards” by Sienna Kossman). In other words, as of this October, there will be a change made in who credit and debit cardholders can look to for reimbursement of fraudulent charges. Before, if an in-store transaction was conducted using a stolen card, consumer losses from that transaction typically fell back on the payment processor or issuing bank. The liability for card-present fraud may now shift to whichever party is the “least EMV-compliant.”
Conversion to chip-reading processors is not always an easy or inexpensive task. Many large retailers have invested significant sums to do this. Smaller retailers may see the conversion as too expensive or unneeded, based on their prior experience with fraud.
3. If you own a business, liability may fall on you if you are not chip-card ready.
Any parties not EMV-ready by October 2015 could face much higher costs in the event of a large breach. In a recent USA Today article, “Why your new credit card is different than before,” AP reporter Ken Sweet reports, “This entire switch is a massive undertaking. Roughly half of all U.S. credit and debit cards will be replaced by the end of the year. Tens of thousands of individual merchants need to upgrade their equipment to allow for chip transactions instead of ‘swipe-and-sign’ ones.”
In the past, a legitimate cardholder has looked for reimbursement from a regulated financial institution with larger thresholds of capital and reserves. But this will change soon. After October 1, any business that is not chip-card ready will carry this burden.
Bryan adds, “The added security of the chips is being featured and touted, but included in the changes is the transfer of liability from automatically being that of the card issuer to that of the least technologically prepared. Banks, for the most part, have had this on their radar screen for much longer than the Main Street mom-and-pop retailer. Banks have invested in issuing chip cards or are on a waiting list with their card producers to begin issuing the chip cards.”
So if a fraudulent transaction of $1,000 is conducted using your chip-embedded debit card at a retailer without a chip-enabled card reader, you will be looking to the retailer to reimburse you the $1,000. Gas stations, Bryan points out, will have more time to make the switch before falling under the new liability rule. They have until 2017 to be EMV-compliant. Until then, they will follow existing fraud liability rules.
4. If you travel abroad, plan to use a chip-and-pin card.
Most countries are EMV-compliant, and many European countries adopted EMV technology two decades ago. If you are traveling abroad, merchants in other countries may not accept the garden variety magnetic-strip card, and unmanned kiosks, such as train ticket stations, are often set up to only process a chip-and-pin transaction.
5. The first phase of making the United States EMV-compliant will include distribution of chip cards that also have a magnetic strip.
While this technology makes the use of a card more secure, the issuing of all chip cards will not fully take place by October 1. In fact, most cards issued will have both the magnetic strip and chip embedded. This will allow time for merchants to convert to machines needed for processing a chip-card transaction.
Bryan says, “Unfortunately, in today’s world, the likelihood of being a victim of card fraud is relatively high, and the mindset of pushing responsibility to another party is common. Be informed, know the rules and take the necessary steps to protect your finances.”
For more information about getting chip-and-pin card ready, read “8 FAQ’s About EMV Credit Cards,” by Sienna Kossman on CreditCards.com, “The Hidden Cost of Chips,” by attorney David W. Adams, and USA Today article, “Why your new credit card is different than before,” by AP reporter Ken Sweet, or stop by your bank to speak with a financial adviser.