April 29, 2015

Why Aren’t We Using EMV Chip Credit Cards?

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Starting in 2015, the credit cards we use in the United States will finally catch up to the high level of security that card users in other countries have enjoyed since the early 1990s. The recent security breach at Target, in which 40 million users had their personal information stolen from credit card swipes, has hastened this planned transition. After October 2015, all American credit cards will be switching to the secure EMV chip technology. Here’s an explanation of this technology and why we have been so slow to adopt it:

Almost all credit cards in the United States have a magnetic stripe on the back. This magnetic stripe technology was invented by an IBM engineer in the 1960s, and back then it was pretty secure. Hackers’ skills, however, did not stay at the 1960s technological level, and they developed clever methods of stealing the swiped information from point of sale credit card transactions.

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The letters “EMV” stand for Europay, MasterCard and Visa, which are the three largest global credit card issuers. EMV cards don’t have a magnetic stripe. Instead, each card has a unique microchip embedded in it, and this chip holds encrypted information that is nearly impossible for hackers to gain access to. There are two types of EMV credit cards: chip and signature cards, which require a signature at the point of sale, and chip and pin cards, which require a customer to enter a PIN number when they make a purchase.

Back in the 1990s,  the United States had a nationwide payment network for credit card transactions and this mostly protected American consumers from point-of-sale fraud. Europe, on the other hand, did not have a unified system for the whole continent, and so it had to develop a technological method to prevent fraud right at the point of sale. After hackers in the U.S. created new methods of identity theft, some Americans proposed switching to the EMV system. However, this switch would require all new devices for accepting credit cards, and merchants balked at the replacement expense. Since consumers weren’t demanding EMV cards, it was easy for banks to just let things stay as they were.

Yes, since the switch is definitely coming next year, some banks are already offering these cards upon request. The big banks have chip cards available to customers who request them, although at the moment the only customers who ask for the cards are international travelers whose magnetic stripe cards don’t work in European stores.

After October 2015, merchants will be motivated to pay for new card-reading devices. This is because after that date the liability for fraud will shift from card issuers to merchants, so merchants will want to protect themselves by using the more secure technology. Banks in turn will feel good about issuing the new chip cards to customers because they will be accepted everywhere. Once that system is in place, American consumers can be confident that they are protected by the strongest available credit card technology.

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