Beginning Oct.1, don’t be startled if the store’s credit-card terminal doesn’t work the way you remember.
The credit-card industry is pushing stores, banks and any business that accepts credit cards to switch to chip-card technology by that date — or face the consequences. For consumers, this means a new credit card with a shiny chip on it. When you pay, you must insert the card into the machine instead of swiping it. Most importantly, if someone steals your card, counterfeits it or uses it to buy a big TV, you won’t have to pay for the fraud.
Retailers aren’t so lucky. When you complain to Visa that you didn’t buy the TV, Visa will credit your account and charge the store that sold the TV.
In others words, credit issuers will shift liability of counterfeit card purchases to the merchants who accept those cards on older terminals. Any questions?
Q: Why are we switching to chip cards?
A: To stop counterfeit credit-card fraud in the U.S. Remember in late 2013 when from Target in-store purchases were pilfered? The stolen data included information stored in cards’ magnetic strip. That data never changes and could be copied and stamped onto a counterfeit card.
Visa says such fraud is two-thirds of all its credit card fraud. The U.S. has become a target because most major countries already have switched to chip cards, leaving the U.S. “the path of least resistance,” said Thad Peterson, a senior analyst with Aite Group, a research consultant.
Enter chip cards. They produce a unique code with every transaction. Even if the code gets copied, it’s no good. The transaction is done.
Q: What has taken the U.S. so long?
A: Visa says a big reason is the scope of the change. The U.S. is the largest country to do this. More card holders, more merchants and more banks means the whole process takes longer.
In August, Visa said nearly 142 million chip cards were in the hands of consumers, or 20 percent of what needed to be issued.
There are likely other reasons. Another one, said Michael Moeser, director of payments for Javelin Strategy & Research, is , which required debit cards to be processed over at least two unaffiliated systems. Other countries don’t have that requirement. That delayed the process of ramping up in the U.S.
Q: What is EMV?
A: Another name for chip cards. It stands for Europay, MasterCard and Visa. It’s the widely used moniker for chip cards by most people in other countries and in the industry.
Q: Should I have a new chip card by now?
A: Theoretically, yes. In reality, one or two but not all of your credit and debit cards now have chips. There is added expense to embedding a chip on a piece of plastic, so many banks are waiting to send out new chip cards until existing ones expire. Plus, all banks are reissuing cards, so demand for plastic is probably outpacing supply.
FirstBank senior vice president Laura Keasling said all of its credit card customers now have chip cards, but debit card holders won’t hit 100 percent until second quarter of 2016.
However, Keasling said that if a customer calls, a new debit card will be shipped out as soon as possible. Banks have financial incentive to get the cards quickly. If a bank customer doesn’t have a new chip card and the old one gets counterfeited, the bank is liable.
Q: Will paying for groceries be different?
A: Yes. If you swipe your chip card, the machine will say something like, “This is a chip card. Please insert.”
You also have to wait until the cashier has tallied everything up. Once there is a total price, insert the card and leave it in the machine. Don’t swipe it in and out. The card needs to stay in the slot for several seconds to process.
Once authenticated, you’ll need to sign the screen or type in a PIN code. And don’t forget to take your card before leaving the checkout.
Q: Why doesn’t every store have a chip-card reader, or why don’t they work?
A: Visa set the Oct. 1 deadline in August 2011, but the cost of upgrading equipment, the seemingly minimal marketing and the need to train employees has made October more of a starting point.
If the U.S. follows other countries, 90 percent of merchants and consumers will move to the chip in three to five years. We’re just not there yet.
Also, ATMs and gas stations with pay-at-the-pump have a more difficult task in upgrading equipment and technology. They won’t become liable for counterfeit charges until October 2017.
Q: I have my chip card. I’m safe, right?
A: You won’t be responsible for charges related to counterfeit card activity, but that’s only one form of credit card fraud.
There’s also online fraud, and lost or stolen cards, among others.
Other security efforts are tackling those aspects of thievery. Banks and credit companies have their own software analyzing what might be unusual purchases. Hence, you get a call from the credit card company asking, “Did you make this purchase?”
To optimize the security of a chip card, use the merchant’s chip-card machine. If you lose the card or it’s stolen, report it just like you used to. Someone else could use the card in stores or for online purchases until bank software figures out the deception or you call in the loss. Either way, if it’s deemed fraud or theft, you’re not liable.
Retail trade groups are also pushing banks to add a second form of protection: a 4-digit personal identification number. The United Kingdom adopted “chip and PIN” in 2006.
Visa said it left it up to banks to decide whether to require a PIN code or just a signature. Most U.S. banks went with a signature. Many in the industry think the U.S. will add PIN eventually — especially if its absence makes U.S. systems a target. For now, the focus is on familiarizing consumers and merchants with using chip cards.
“Adding PIN for additional security is another measure that merchants/issuers could take; however, this only protects for the physical theft of plastic, or ‘lost/stolen’ fraud, which is a much smaller contributor to fraud overall,” said Dina DeMerell, Chase executive director, payments security. “At this point, rolling out chips smoothly and developing tokenized payment solutions are our main focus.”
Q: My chip card has a magnetic strip. Is it less secure?
A: Not really. Some stores don’t have chip-card readers and probably won’t upgrade their machines until the current ones break. In those stores, you’ll need to swipe the magnetic strip.
Should the strip’s data get stolen and counterfeited, the new fake chip card won’t work in a chip-card reader — and swiping the card should pop up the instructions that this is a chip card. It would be up to the retailer to risk approving a suspicious purchase.
Q: Do I need to carry my chip cards in a wallet that blocks wireless signals?
A: No. These cards are not wireless. These are chip-to-chip cards that must be placed inside a reader to exchange the unique code.
Wireless credit cards, on the other hand, use radio-frequency technology (U.S. passports have it, too) to wirelessly send information. The logo looks like four parenthesis growing in size. Known as contactless payments, the card lets you wave it close to a credit-card terminal to pay.
As for security, the says contactless payments must be within 2 to 4 inches of a terminal, which limits access. The payment is also encrypted. Contactless cards generate a unique code for each transaction, so the secret key secured in the chip is never shared. If you have one of those contactless cards (or a U.S. passport), hopefully you know it and
Related are contactless mobile payments via Apple Pay, Samsung Pay and Android Pay. Peterson, the Aite Group analyst, says mobile pay systems are more secure than chip cards because the entire process is encrypted. The retailer never sees the card number. Plus, the payment requires a secret PIN or fingerprint for approval.
“The last thing,” Peterson said, “is people immediately know when they’ve lost their phone, unlike a credit card.”
Q: What about my Target Red Card or other store card?
A: The only place you can use those cards are at those stores. Fraud is covered by the store itself — not Visa or MasterCard. Those stores have no incentive to add a chip.
Target, however, appears to be the rare retailer upgrading its credit cards to chip cards — and .
Q: What about merchants? I’m completely confused!
A: The switch carries a financial burden for any merchant who accepts credit cards for payment in person. Either you’ve paid to upgrade your credit-card machines and payment systems, or you accept the risk being responsible for counterfeit cards swiped at your business beginning in October.
Many the upgrade until existing machines break down.
As a merchant, what might help you decide is your level of risk.
Visa has identified several high-risk merchant categories: stores that sell high-dollar items (jewelry, electronics), services (optometrists) or gift cards (grocery and drug stores).
Credit companies collect data on counterfeit fraud affecting each business, so check with them to help determine risk. Visa offers a merchant kit at .
