What’s the story behind your new EMV cards?

Even if you are among the more than 120 million Americans who already have received new credit or debit cards with embedded microchips, you might not know the full story behind the switch to the more secure technology. Effective Oct. 1, new rules shift liability for fraudulent transactions to card issuers or retailers who have not upgraded to microchip technology. 

But you probably do not know the main reason why card issuers are making the change: widespread fraud. Although the U.S. accounts for about 25% of all credit card transactions, roughly half of all credit card fraud occurs here. The security features on the new chip cards will make it more difficult for fraud to occur.

In addition to adopting the chip technology, which has been in place in Europe and other locations worldwide for years, banks and other card issuers have new liability rules in place as of Oct. 1. The chip technology will not prevent all fraud but it’s expected to reduce losses significantly. Often referred to as the EMV shift — for Europay, MasterCard, and Visa, the companies that established the security standard — the new rules determine who will pay if fraud does occur.

Previously, if a face-to-face card present fraudulent transaction occurred, the card issuer usually was liable. With the EMV shift, liability will fall to the party that is least compliant with the new rules. That is the motivation for banks and other card issuers to switch to the new chip cards. But the new rules also affect retailers and other vendors, who now could be liable for losses incurred in credit card fraud if they don’t offer chip enabled card readers.

For example, if a purchase were made with a stolen or counterfeit chip card from a merchant that has not updated its system to accept the new technology, the merchant would be responsible for the loss. In the past the card issuer was liable.

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Here are some key points regarding the new chip cards and liability rules:

What’s different about the cards? — The new cards have a metallic colored chip embedded on the front. The chip contains your card data in a format more secure than that magnetic stripe on the back of the cards. The data on the magnetic stripe is constant, meaning that if the card is stolen or the data is copied thieves or hackers can make fraudulent purchases over and over until the card is cancelled. However, every time an EMV card is used in a card present transaction, the chip creates unique one-time transaction data to complete the transaction. So, even if a hacker stole chip information from a transaction, the fraud would end there because the data can be used only once. The chips also make the cards more difficult to duplicate if they are stolen.

How do you use the cards? — Instead of the familiar swipe motion, chip cards are inserted into a slot similar to those on ATMs so the system can read the data. That process allows the bank or card issuer to verify that the card is legitimate and to create the transaction data. Merchants must upgrade their equipment and systems to accommodate the chip technology.

Will I still need to sign or use a PIN? — Card users will need to either sign or use a PIN, but it will depend on the type of verification tied to your EMV card, and how the merchant is set up to accept the chip card. Most chip cards will operate with a PIN and/or a signature, so customers will need to be prepared for both options.

What happens if a retailer has not upgraded for EMV? — You still will be able to use a chip card for purchases and transactions because EMV cards will have both chip technology and a magnetic stripe. However, if the retailer does not have chip technology in place, the chip’s security functions will not be available in those transactions.

Will the chip cards be accepted outside the U.S.? — Yes. Many international merchants have used chip technology for years. They also still accept magnetic stripe cards, but they would prefer the more secure chip transaction.

Christopher E. Kennedy is banking center manager, Sheboygan North and West, for Wisconsin Bank & Trust, member FDIC.

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