In an attempt to bring the United States in line with the credit card security used in much of the rest of the world, banks and credit card companies are mailing out hundreds of new “chipped” cards. There is an Oct. 1 deadline looming for merchant upgrades on terminals that can read the new cards. On that date the liability for credit card fraud shifts from banks to merchants or to the party using the least secure technology.
Credit card users most likely won’t bear any liability for fraud and so the deadline may not be important to you. However, as a card user you need to be aware of what’s happening especially when the holiday season hits and the lines get long. By that time merchants will have begun deploying chip-card readers.
A chip card, also called a smart card, is a credit or debit card with a computer chip embedded in the face of it. That is the only difference in appearance. Most cards being sent to card holders will still have the magnetic stripes which can be used by stores who don’t have the chip-card readers yet. Reports say it took Canada nearly eight years to reach a 90% conversion, so it may take years for the US to move everyone to the new cards. Major retailers like Wal-Mart have been converting payment terminals to support chip cards for several years already.
Most European countries have been using the chipped cards for years. They are much more secure than those with just a magnetic stripe. The chip in the card communicates with the network behind the terminal which enhances security. The magnetic stripe just forwards your card number and related data to the network. The chip communicates a unique encrypted token with your actual credit card number. When the token reaches the bank it is uncrypted so the bank can verify your account and authorize payment. It all takes just a few seconds.
The reason for a PIN or signature is to provide the merchant and the bank more evidence that the user of the card is the actual owner. If your card is lost or stolen, even with a chip, it can still be potentially used by someone else. The PIN while unique, can still be stolen. Which cards use a PIN or signature are determined by the card issuer.
Shopping online won’t be any more or less secure than what it is right now. It will be the same as if you are using a magnetic strip card.
It is important to know how to use a chip card. You can see a three-step illustration on using the cards at GoChipCard.com, a website supported by major banks and credit card companies. According to the site the first step is to insert the card at the bottom of the terminal with the chip face up. This takes the place of swiping the magnetic stripe.
The most important detail in this step is not to remove the card from the reader until prompted. People are use to swiping and tend to remove their cards too quickly. There are over 20 vendors of payment terminals and varying methods for confirming the sale is complete and a card is ready to be removed, so you may have to be patient.
The second step is to provide a signature or PIN whichever is prompted by the terminal. Some retailers may not require either one for purchases under $25.
The last step is to remove your card when the transaction is over. Again, it’s important to wait to remove your card until the terminal says okay.
Many new terminals support both methods as well as NFC payments via smartphones and smartwatches which use Apple Pay. NFC payments are usually completed by touching or nearly touching a device to a payment terminal and and entering a confirmation on the phone. Some retailers are already using the touch terminals.
The process of converting to chip cards appears to be fairly simple but many people are not technically minded and may have trouble making the change. Americans have been using the magnetic swipe cards for decades and store clerks may not be properly trained to help customers use the chipped cards. Just make up your mind to be patient after Oct. 1. You could be waiting in line longer this holiday season as retailers and shoppers learn to cope with the change.