Credit cards containing EMV (Europay MasterCard Visa) chips have finally been adopted in the United States in an effort to reduce credit card fraud. There are numerous advantages in this chip technology versus the traditional magnetic stripe credit cards. The retail industry is a prime beneficiary. Below are some facts that answer many frequently asked questions about the new cards:
How do EMV cards reduce credit card fraud? Mag stripes on traditional credit and debit cards store data that is unchanging. That makes traditional credit cards prime targets for counterfeiters who can easily access that static data. In addition, mag stripes are easily duplicated. With a chip-embossed EMV card, a unique code is created for each transaction and the code cannot be used again. The introduction of EMV cards in other countries has proven to be effective in curbing credit card fraud.
Are EMV cards difficult to use? Just like magnetic stripe cards, EMV cards are processed for payments in two steps: card reading and transaction verification. However, inserting a card into a chip reader first is easier than trying to determine which way the mag stripe should go or which way you swipe. Then you have to hope that the transaction takes on the first pass. When you insert a chip card (called card dipping), data flows immediately between the card and the issuing financial institution to verify the card’s legitimacy and create a unique transaction data stamp, deterring credit card fraud.
Besides card dipping, how else can you pay with an EMV card? EMV cards also support card reading, also known as near field communication (NFC). Instead of dipping or swiping, NFC cards are tapped against a terminal scanner that can pick up the card data from the embedded computer chip. Contactless transactions are more consumer friendly because you just have to tap. Internationally, there is a move to make EMV cards dual-interface, enabling both contact and contactless transactions. However, in the United States, most financial institutions are currently issuing contact cards, which require dipping or swiping
Do you still have to sign or enter a PIN? One of the two is still necessary, but it depends on the verification method tied to your EMV card, not whether it is a credit or debit card. Going forward, there aren’t going to be many issuers requiring a PIN. The vast majority will be issuing chip and signature cards, which most people are already used to. Full conversion to chip-and-PIN technology will likely take up to three years. There will always be a second option (signature) if a terminal doesn’t have the ability to accept a PIN.
Who bears responsibility for a credit card fraud transaction? In the past, if an in-store transaction was conducted using a counterfeit, stolen or otherwise compromised card, consumer losses from that transaction fell back on the payment processor or issuing bank, depending on the card’s terms and conditions. Following an October, 2015 deadline created by major U.S. credit card issuers MasterCard, Visa, Discover and American Express, the liability for card-present retail fraud shifted to whichever party is least EMV-compliant in the transaction. If a merchant is slow to convert to chip technology, the cost of the fraud will fall back to them.
Since we are beyond October 2015, is the transition to EMV technology complete? The simple answer is no. Although there is strong incentive for all payment processing partners to become EMV-compliant and reduce card fraud as soon as possible, not all entities have made the transition yet. EMV debit cards, in particular, are rolling out at a slower pace. Only about 25 percent of U.S. debit cards were issued as EMV chip cards by the end of 2015. The rate is estimated to be only 57 percent by the end of 2016. The slow adoption rate cannot be blamed totally on retailers. Banks are scrambling to prep their internal software to accept the new cards, but this transition is potentially responsible for the slow rollout. To date, the vast majority of chip cards are coming from huge entities like Bank of America and Chase.
What about retailers who still don’t support EMV technology? The new chip cards can still be used. The first round of EMV cards currently being used by many consumers are equipped with both chip and magnetic stripe functions. This can be a bit frustrating if the payment terminal re-directs the consumer to swipe instead of dip, or vice versa. While many large retailers such as Walmart, Target and Costco have upgraded their POS terminals to accept chip cards, many other retailers are not EMV ready. According to the EMV Migration Forum, 5 million EMV-ready payment terminals are in the U.S. right now but only 1 million can actually accept and process chip card payments. The Forum estimates that only 90 percent of terminals will be enabled by the end of 2017.
Will U.S.-issued EMV cards be accepted outside of the United States? Maybe, maybe not. Many European countries moved to EMV technology years ago to combat high credit cards fraud rates. This shift has left many U.S. consumers who have only mag stripes cards unable to use their cards overseas. A card containing a chip will be more widely accepted in Europe. But since chip and PIN cards are the norm in many foreign countries, a U.S. consumer with only a chip and signature card may not be able to use that card.
In spite of a slow adoption rate of EMV cards and technology in the United States, credit card fraud rates are already beginning to drop. In January 2016, chip-enabled merchants saw a 26 percent drop in credit card fraud compared to a year earlier, according to MasterCard and Visa. Other research puts that number at almost 39 percent. Credit card security progress is being made, albeit not fast enough.
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