A chip in your credit card? Here's what to expect
By Allie Johnson
August 6, 2014
Credit card issuers in the United States are switching to chip technology in an effort to fight fraud. But what does that mean for you?
When is the new technology coming?
Right now, cards have a magnetic stripe on the back that you swipe when you make a purchase. Because retailers have until a October 2015 deadline imposed by credit card networks to change to point-of-sale terminals that work with chip technology, the new cards will have mag stripes as well, experts say.
But, next time your credit or debit card needs to be replaced because it's lost or expired, or when you apply for a new card, the plastic you receive may contain a chip that holds encrypted card information, says Doug Johnson, vice president of risk management policy for the American Bankers Association (ABA).
What will the new cards look like?
Will you notice anything different about the new card? It probably will be slightly thicker and heavier than your old card, Johnson says. Also, on the face of the card, you'll see a gold or silver square that covers the embedded chip, he says.
Chip technology has existed for more than 20 years, but the United States has lagged behind other industrialized countries in adopting it. Now, retailers who stick with old point-of-sale terminals made for mag stripe cards after October 2015 may be held financially responsible in fraud cases that could have been prevented by chip technology.
The massive data breach at Target in late 2013, along with breaches at other retail outlets, has spurred card issuers and merchants to embrace the technology even more quickly, says Scott Larson, president of Larson Security and a former FBI cyber crime chief who worked in credit card fraud cases.
One of the main benefits of chip technology is that it will make it harder for criminals to counterfeit or copy lost or stolen cards, according to the ABA. “Trying to replicate the chip on a card is very difficult,” Johnson says.
But, unless most online merchants start to require double-factor verification, for example, a card number and PIN, the technology will not prevent fraud for purchases when you don't need a physical card, Larson says.
How does chip technology work?
Here's how a shopping trip with a chip-enabled card would work: You're at a discount store with a cart loaded with clothes, lawn furniture and a new TV, and you pull out your chip-enabled credit card to pay. The retailer has a chip-enabled terminal, and you slide your card in instead of swiping it.
The chip in your card sends encrypted information to the terminal, including a digital key that can only be used once. The information from the chip allows your card to be authenticated, Larson says.
If you're shopping at a large retailer, the authentication probably will happen online, with the terminal communicating with your credit card company. At a smaller shop, it likely will happen offline — via communication between your card and the terminal, he says.
Then, depending which type of chip-enabled card you have, you'll either enter a PIN or sign for the transaction, and go on your way.
Which type of card will America use?
Chip technology is sometimes referred to as EMV, which stands for Europay, MasterCard and Visa, the payment networks that initiated the push for the technology more than 20 years ago, according to EMVCo, which manages EMV specifications and testing.
The technology also sometimes is called by other names, depending on what type of verification the customer provides when making a purchase, such as:
- Chip-and-PIN — In some countries — for example, most of those in Europe — cardholders have to enter a PIN to verify their identity each time they pay with a card.
- Chip-and-signature — For some chip-enabled cards, cardholders sign their names, instead of punching in a PIN, to complete a transaction.
In some regions — for example, the United Kingdom and Canada — financial institutions got together and decided to use chip-and-PIN technology for uniformity, says Randy Vanderhoof, director of the Smart Card Alliance's EMV Migration Forum. But, he says, each U.S. card issuer will make its own decision about which verification method to use.
Research by the Aite Group shows that most U.S. issuers will use chip-and-signature technology. In fact, 13 out of 18 top issuers interviewed by the Aite Group plan to use chip-and-signature, while four are undecided and only one plans to use chip-and-PIN.
Chip-and-signature is less secure than chip-and-PIN, but more secure than the current mag stripe and signature, Larson says.
The Aite Group research also shows most issuers also will go with cards that the consumers must slide into a terminal rather than cards with contactless technology that can simply be waved near a terminal.
For example, Bank of America has decided to primarily issue chip-and-signature cards, says Betty Riess, a spokeswoman for Bank of America, which is adding chip technology to most credit cards, both for new accounts and when reissuing expired cards.
Bank of America decided to go that route to make the transition more seamless for cardholders. Riess says: “Consumers will continue to sign for their purchases just like today.”
Chip-and-signature cards still will have magnetic stripes so they can be swiped at stores that don't yet have chip-enabled terminals, Vanderhoof says.
Simply having the mag stripe on a chip-enabled card doesn't make the card less secure, Larson says. However, any transaction completed using the mag stripe will be less secure than a transaction made using chip technology, he says.
What can you expect next?
How quickly will U.S. card issuers move to EMV? Estimates vary, but research from the Aite Group found that 70 percent of all U.S. credit cards will have chip technology by the end of 2015.
As merchants make the transition, things could get a bit confusing for consumers, experts say.
For one, if you have a chip-and-signature card, but travel to a European country or some other places, you might not be able to use your card in some situations. For example, unmanned train kiosks in Europe require a chip-and-PIN card. However, in many cases in Europe, cards without the chip-and-PIN technology are accepted. Call your card issuer to clarify what kind of card you have, and have two forms of payment handy, for example cash and a credit or debit card.
There might be a bit of confusion at home, too, Vanderhoof says.
Consumers might not know if a merchant has an EMV-enabled terminal at the point of sale or not, Vanderhoof says. What if you have a chip-enabled card but you go to buy groceries at a store that doesn't support the technology? You'll simply swipe your card's magnetic stripe just like you have for years, he says.
However, if you go into a store that has chip-enabled terminals and you accidentally swipe your chip-enabled card, the terminal will recognize your card as a chip card and should instruct you to insert your card to complete the transaction, Vanderhoof says.
If your card doesn't have the new technology, don't worry, because the new chip-enabled terminals will have dual technology so you still can swipe a card: “For the foreseeable future, the terminals will always have the mag stripe capability,” he says.