Hey again! I hope you had a savvy week of smart spending!
You may have heard about chip cards or even received one if your issuer is proactive. You can easily identify a chip card by the little gold-colored metallic chip on it. This chip is the new way of authenticating/verifying your information during transactions. These new chip cards are replacing the older type of cards in order to improve payment security.
What’s this new type of card?
Chip cards or EMV cards (EMV stands for Europay, Mastercard and Visa) are the new standard in payment card development. The technology is used for both debit and credit cards. You may also hear chip cards being referred to as smart cards, smart chip cards as well as EMV cards. They are all referring to the same thing. EMV cards are already very widely used and accepted in Europe but the US and Central America region/Caribbean are just catching up.
How does it work?
Basically a chip card has a small computer chip in the card that holds your information in an encrypted manner (this means, fraudsters can’t easily read your information because it is held in a kind of code). As a result, chip cards are thought to be much more secure than the older type of cards that use a magnetic stripe (mag stripe) only. Most chip cards being issued today have both chip and mag stripe to accommodate use at both chip and older type mag reader machines until the transition is complete.
How are chip cards better?
The main difference between a chip and mag stripe card is that on older type cards using mag stripe only, the data stored on the card doesn’t change, therefore a fraudster can easily replicate it on another plastic. However, because the data on a chip card is encrypted and uses a unique code for each transaction, it is extremely difficult to duplicate.
Some chip cards even have an extra layer of security by requiring use of a unique PIN to complete each transaction.
Are chip cards safer?
The data suggests so. Visa reported 52% decrease in counterfeit fraud at chip-enabled merchants in September 2016 compared to a year earlier. This further compared to 14% year over year decrease in counterfeit fraud for all merchants in September 2016.
According to square.com, card chips have been proven to help curb fraud — especially in Europe, where roughly 90 percent of credit card terminals are now EMV enabled. The UK has seen a nearly 70 percent decline in counterfeit card transactions since adopting chip cards. Similarly, in Canada, losses due to counterfeit cards reportedly dropped by about half.
But, chip cards don’t prevent online fraud.
While chip cards are great at preventing card duplication and ATM fraud, chips don’t prevent e-commerce (online shopping) fraud so you still have to use every precaution when shopping online.
It is anticipated that the fraudsters will shift focus from trying to skim and duplicate cards to stealing card numbers etc for online shopping, so be on the lookout.
How are chip cards used?
Chip cards are dipped into a slot in the card reader instead of swiped as you would a card with a mag stripe. It takes a few seconds to process and the card cannot be removed until the machine signals the transaction is completed. If you pull out the card before processing is finished, you will have to start over.
With increased conversion to chip type cards and card readers (the machines also have to be changed), it is expected that the technology will rapidly improve over the short term, allowing for faster processing.
Based on the deadline for conversion and the expected liability shift, most issuers and acquirers are expected to be on board with EMV by the end of 2017.
What is liability shift?
When a fraud occurs at a merchant with a duplicated card, the issuer usually absorbs the loss. However, once the deadline for EMV acceptance has passed, the merchant will be liable for the fraud if the business doesn’t have EMV compliant equipment. This is expected to be an incentive for issuers and acquirers.
So if your bank hasn’t started the process, users need to start asking questions, especially since fraudsters are always seeking out the easiest targets and will focus on any unprotected areas, such as regions or banks still issuing mag stripe cards.
Why the wait to switch over?
You might wonder why it is taking the banks so long to switch if this is such a good thing. It all comes down to the bottom-line. Card production and card processing equipment is expensive. Most are weighing the odds and trying to get on board at the last moment. Based on shifting liabilities and penalties for non-compliance they will have to act soon and act quickly, whether they want to or not.
By the end of 2017 most issuers and acquirers will be on board with chip cards and POS equipment. We expect card duplication to be significantly reduced, making ATMs and POS much safer places for cards. It is also expected that online card fraud will increase but other new solutions such as card wallets will continue to gain momentum. With the convenience of purchasing with virtual money, unfortunately, comes, new threats.
What should you do?
Be vigilant about card usage best practices. Monitor your card balance. Ensure you use a bank/issuer with a good fraud monitoring and refunds policy to protect you in the event of fraud.
Evaluate your card usage habits and plug any gaps that may be exposing you to fraud. Change your card if you need to.
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