Are You Ready For Chipped Credit Cards?

U.S. banks are changing the security features of customers’ credit and debit cards in a long overdue measure to reduce card fraud. Cards will still work the old-fashioned way, but merchants who upgrade their systems to use the new security features will save money. They’ll also avoid the new liabilities for fraudulent charges that will be borne by merchants who don’t upgrade their systems…

A More Secure Credit Card

The new security feature is called EMV, and I explained it back in February. Briefly, EMV defeats counterfeiting of cards by cloning. A microchip on the card enables it to communicate interactively with a compatible card reader during a transaction, creating a one-time encrypted authentication token for each transaction.
More than half of the entire world’s credit card fraud occurs in the good old U. S. of A. That’s mainly because U. S. merchants have resisted EMV security because it costs money to upgrade all of those card readers and payment processing systems. The rest of the developed world started using EMV in 1993, so fraudsters have gravitated to the easier targets here in the U. S., and banks have gotten tired of it.
EMV - Chipped Credit Cards
Security experts believe that the recent massive breaches at Target, Neiman Marcus and other retailers could have been prevented or at least greatly limited by the use of EMV-enabled cards with the embedded microchips.
Currently, when credit card fraud is committed the card-issuing bank usually eats the loss. But after October 2015, merchants who do not use EMV protection in their transactions may be liable for any resulting fraud losses. So you can save money by not upgrading to EMV technology, but your risk of credit card fraud losses will increase.
Paypal already sells an EMV-compatible card reader in the UK, so it should be readily available for U.S. merchants soon. Square, Inc., is offering merchants information on EMV and promising an affordable card reader that’s compatible with EMV. Square is also working on an update to its $99 Square Stand mobile POS system that turns an iPad into a secure transaction terminal.
Unlike the Paypal EMV reader, Square’s will not have a PIN pad, presumably to keep cost down. Instead, customers will “dip” the short end of a card into the reader so that the card’s embedded chip can communicate with the reader. Traditional mag-stripe swipes will still be supported, but as stated above such transactions will carry increased risk of chargebacks and associated fees after October, 2015.
Online-only merchants may think that EMV means nothing to them; after all, they never see a customer’s card. But fraudsters take the path of least resistance. When EMV is implemented by U. S. brick-and-mortar merchants, fraudsters will focus on e-commerce even more.
Protecting oneself against online card fraud will become more important than ever. In Europe, some credit card users have a device that allows them to swipe their EMV-enabled card and get an authentication code that can be used for online transactions. Let’s hope that U.S. banks and websites do likewise, and soon.
Your thoughts on this topic are welcome. Post your comment or question below…


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Comments

  1. I live outside of the US part of the time. My European Visa has a chip. Yes, it is much easier to use than is my US Visa with no chip. For online purchases there is a bank connected verification system I can use. More and more merchants are including the bank verification system in a purchase process; especially for bigger ticket items. Chips are needed. they’ll be fine until thieves figure out a work around – then we’ll move on to the next security measure. Life goes on.

  2. I understand the need for security measures, regarding credit and debit cards. But, what happens when thieves, find a way to copy EMV-enabled cards? Who would be responsible for fraudulent charges?

  3. These chips have been on Canadian credit and debit cards for years already. Unfortunately, though they do help to make fraud more difficult, they don’t make it impossible.
    There are versions of standard POS devices that can be substituted for the merchant’s real one so as to record the chip and pin information of customers. Obviously, this method is easiest for the owner or an employee of the store, restaurant or bar. There is no way the customer can tell this has happened — I was robbed this way at a nationally-advertised electronics store, though I ultimately got my money back since I was one of many victims.
    There are devices that can “read” your chip wirelessly and enable a scammer to clone your card –but also cardholders that block this, which are a good idea– and a well-placed spy camera can record you typing in your PIN–which is why you should shield what you’re typing from prying eyes in or near the ceiling.
    In other words, people can’t just rely on technology to protect them. Every improvement on the technical side is soon followed by some way of circumventing the protection. The best we can do is be alert and keep an eye out for new developments in electronic security.

  4. We have had chipped cards in New Zealand for a number of years now and they are fine! One caveat, however, they can be picked up by a reader in close proximity and so pose a security risk (in spite of the banks saying that they can’t). Our bus pre-pay card system detected the chips as soon as the cards started coming out. Protection is simple and cheap, just fold a couple of layers of aluminum cooking foil around cards in your wallet – problem solved!

  5. Bob , though I am not a business owner, I do love to hear what is going on in the business world. Thanks, for this article.
    Just 2 days ago, I went into Sam’s Club to purchase some items. When, I was checking out, I had to wait for the previous customer. I saw, her using multiple credit/debit cards to make her purchases. It really took quite awhile, for her to do all of this. Sam’s had already closed.
    When, I finally, got my items ringing up, I got talking with the Associate. I mentioned, how in the past, using Credit Cards like how the previous customer was using them, could lead to fraud or bad credit charges. But, with today’s technology, that practice is slowly being eliminated. The sliding of the Credit or Debit card is almost instant, so, the transaction is either accepted or rejected.
    Then, the Associate showed me a “new” way of checking Credit or Debit cards. At the end of the Transaction/POS machine, there is another “slot” that can be used to check out the card. I didn’t understand, how that would be any different, than what is normally used … Until, I read this article!!! Looks like Sam’s Club is ready for the EMV cards!!!
    It now, makes perfect sense to me. Again, thank you Bob … For another great, learning article, even though I am not a business owner!!!

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