What’s that New Chip on My Credit Card?

Many of you may have noticed that you’ve been receiving replacement credit cards over the last few months. Anyone wondering why? Although the credit card numbers match up, there is one difference, it’s at the top right of the new card and resembles your mobile phone’s SIM card, it’s called the EMV chip.

The EMV chip is named after its developers – Europay, MasterCard and Visa. It’s purpose is to phase out “swiping” when paying at the register and increasing security of the cardholders information. Beginning in October, merchants will be required to upgrade their credit card machines to allow consumers to dip their card into the EMV slot to pay. This technology is already implemented in Europe and Canada, and credit card fraud has dramatically declined since.

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Unlike magnetic stripes, every EMV transaction uses a PIN and sophisticated encryption methods when processing transactions, so if there is ever a security breach, your card’s information is not exposed. This is a tremendous step for the US where credit card fraud is rampant. Unfortunately for merchants, the EMV upgrades will come at a cost.

The EMV terminals will cost a few hundred dollars for each terminal replacement, and some retailers have even threatened to stop accepting credit cards. Despite the unhappy minority, this is a significant leap for American retailers, and in my opinion, we are past due for a change. One feature that may ease apprehensions is the less known, contactless payments. Most of the newer EMV terminals will have built-in NFC (Near Field Communication) that will accept Apple Pay, Android Pay, and tap to pay. This will enable customers to process transactions quickly, thereby moving retail lines faster.

Merchants will be required to start accepting EMV technology beginning October 1, 2015. Liability for any fraud or disputes on swiped transactions on or after this date, will be at the cost of the merchant. I called our bank to verify and understand the liability shift, and it seems it does not effect keyed transactions. Keyed transactions include online retail where users manually enters their credit card number, or if the card is manually keyed in when processing a transaction (Side Note- liability for keyed transactions have also changed but are not discussed in this article). But if a card is swiped and a customer disputes the charge for any reason, or if the credit card is stolen and marked as fraud, the retailer is liable for the chargebacks and any associated fees. Each bank will have their own version of these rules. We recommend checking with your bank for all details and changes to your credit card processing account.

America has been a victim to credit card fraud for too long, despite the cost, with these changes everyone wins. I for one, am looking forward to the days that I can start paying safely with my smartphone and leaving my bulky wallet at home.

Joseph Ades

josepha at shapeint dot com

© 2015, Shape Integrations Inc.

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