Switching to EMV Chip Cards for Better Security

Identity theft was the top consumer complaint reported to the Federal Trade Commission in 2014, the 15th consecutive year it led the list. To combat this trend, U.S. banks are in the process of switching customers to higher-security, microchip-embedded EMV credit cards, which are gradually replacing the familiar magnetic stripe-only cards. Here’s what consumers should know.

They’re more secure

Card skimming is a form of fraud that occurs when identity thieves deploy an inconspicuous electronic device to illegally capture information from the magnetic stripes on cards when consumers pay at gas stations, restaurants or retail stores. It can be very hard to detect, and the fraudsters then use the information to clone fake credit cards. EMV chip cards -— cards with technology developed by partners Europay, MasterCard and Visa — store payment data in an encrypted form that, if stolen, can’t be copied and used by criminals. The chips produce unique one-time use codes for each transaction, which improves security when you make an in-person purchase at a store or restaurant, for example. When the U.K. switched to a system of payment that requires chip cards and PINs to make purchases, fraud in stores went down 70%.

They use either a signature or a PIN

There are a few types of chip cards. With a chip-and-signature card, you provide a signature to complete a purchase, just as you do with your magnetic stripe card. With a chip-and-PIN card, you’ll be asked to enter a personal identification number on a keypad, like when you use an ATM to withdraw from a checking account. There are also hybrid cards that accept either a signature or a PIN. International travelers, in particular, are clamoring for chip cards, since they are already standard in many other parts of the world. Banks, like Mercer Savings Bank, can help customers figure out how best to use their credit card while traveling.

Merchants are catching up

For shoppers to use chip cards, retailers and merchants need to have compatible card readers that can accept them. Not all stores have them yet, but Home Depot, Target, Walgreens and Wal-Mart -— with more than 15,000 stores in total — are among the national retailers that have upgraded their card readers. New cards have both a chip and a magnetic stripe, so they still work with card readers that haven’t been updated yet. The federal government is an early adopter of chip-and-PIN cards, for credit cards issued to government employees and debit cards used in benefits programs. And federal agencies are upgrading their card readers to accept chip-and-pin cards.

You can expect to see usage of chip cards expand as more issuers and merchants adopt them. They’ll gain momentum with the approach of Oct. 1, the date when issuers and merchants that haven’t upgraded will face greater liability for fraudulent transactions.

Jeanne Lee, NerdWallet

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