Credit cards with magnetic stripes are being eliminated in favor of cards with fraud-fighting computer chips. Here are all the details you need to know as a cardholder.
Why is Oct. 1 important?
Banks and merchants have been inching toward the magnetic-to-chip transition for a long time. New rules take effect Oct. 1 that provide a dramatic incentive to make the switch. The rules govern who pays when credit card fraud occurs. After Oct. 1, most merchants that aren’t equipped to accept chip cards will have to pay when fraud occurs. While all chip-card point-of-sale terminals won’t change overnight, that’s a pretty big carrot.
I still have an old magnetic stripe credit card. Will it stop working?
Generally, no. Most point-of-sale terminals will be able to accept both mag stripe and chip cards.
How will this affect me directly?
Ideally, very little. There will be a slight difference in the procedure for using plastic at checkout. Instead of swiping your card, you will insert your card — similar to the way you insert a card into an ATM. Then, you’ll have to wait a moment while the card is authenticated.
What if I still swipe my card?
If your card has a chip on it, most chip-ready terminals won’t accept a swipe. They’ll force you to insert the card into the chip reader.
Why should I care?
In theory, chip cards are nearly impossible to counterfeit. Switching to chip cards will virtually eliminate a certain kind of credit and debit card fraud that’s very common today called “card cloning.” In cloning, criminals steal account numbers and other basic information, then encode a separate piece of plastic with the data and use it to make fraudulent purchases or in some cases, cash withdrawals. That’s how a criminal can steal from your credit card even if your card is still in your wallet. Because the chips haven’t been cloned yet on any kind of wide scale, this version of credit card fraud is expected to drop significantly, as it did when European nations switched to chip cards. So that’s good news.
Will it eliminate all credit card fraud?
Heck no. In fact, there is some debate about whether it will reduce fraud at all, or merely shift it to other forms. Switching to chip credit cards, on its own, does nothing to stop “card-not-present” fraud, such as use of stolen account information to make fraudulent online purchases. When card-present fraud drops, everyone expects card-not-present fraud to rise. So it’ll be even more important that you check your credit card statements each month to spot crime. (If you’re worried about other forms of identity theft and fraud, you can monitor your credit scores for free on Credit.com to spot any unexpected changes that could signal bigger identity theft issues.)
Why do I keep hearing the term “EMV?” What does it mean?
That stands for Europay Mastercard Visa, the three firms that originally developed the standard. In this context, “chip card” or “chip credit card” or sometimes even “smartcard” means the same thing as EMV card.
How does it work?
When a chip card is inserted into a reader that recognizes it, the chip wakes up and performs a calculation that can be checked on the spot to ensure the card is not a fake. Further authentication can then be conducted online with the cardholders’ bank.
The rest of the world has been using EMV for years. Why was the U.S. so slow?
Because telecommunications in the U.S. have traditionally been much cheaper than elsewhere. EMV was critical in Europe and beyond because it was too expensive to perform “online” authentication via phone calls in many places. EMV cards can perform some authentication checks locally, a great advantage in places where telecoms are costly. In the U.S., banks and merchants didn’t mind the long-distance phone calls, so the urgency for transition wasn’t there — until high-profile hacks of retailers like Target really forced the situation.
How far along is the change?
If you ask Visa, pretty far. The firm says 141.9 million chip cards have been issued in the U.S., and 301,000 merchants are chip-ready, a 547% increase over last year. Other folks aren’t so sure. Gallup and Wells Fargo released a survey in August involving 600 small-business owners, and only 29% said they would be ready to accept chip-enabled cards by Oct. 1 do so before the deadline. An additional 21% said they never planned to make the switch.
More on Credit Cards:
- Credit.com’s Expert Credit Card Shopping Tips
- How to Get a Credit Card With Bad Credit
- How Secured Cards Can Help Build Credit
Image: iStock
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