Chip credit cards, more commonly being referred to as “chip cards” (since even regular debit cards and bank cards now frequently fit into the category), are gradually replacing all of the familiar magnetic stripe electronic bank cards. We are reassured by the companies issuing such cards that the transition to chip credit cards will make paying with electronic money safer.
So far, consumers don’t seem convinced.
How Are Chip Credit Cards Different?
Also known as EMV (Europay, MasterCard, Visa), these new chip cards are supposed to make it harder for cards to be counterfeited; harder for hackers to steal personal and financial information from a card being swiped; and reduce the overall cost of fraud for all parties. According to financial industry research firms, credit card fraud in the U.S. has increased by double over the last 7 years. Moreover, other countries have already migrated to the EMV system, making American cardholders even more likely targets for hackers. In fact, the U.S. is the last major developed market using the old system.
Credit card companies admit that the new chip credit cards won’t completely stop data breaches. They will, however, make the data that hackers can get from your chip card almost useless: whereas traditional magnetic stripe cards contain static data that can be used time and again, the new computer chips use “dynamic data,” generating a new transaction code for every purchase that cannot be used again.
The new cards will still use PIN or signature verification for transactions, though the type of card (credit or debit) will no longer determine which method is required. Plus, in order to facilitate a smooth transition, most new chip cards will still have magnetic stripes in case Perhaps the biggest difference between the new and old card types is that liability for fraudulent activity largely shifts from the card issuers to the merchants. If a merchant is defrauded because they haven’t updated to the new card-reading machines, that’s on them, not the financial institutions.
Beyond liability, identity security is a huge issue the chip cards will attempt to solve. You can check out more ways to avoid having your identity stolen here.
Growing Trend, By the Numbers
120 million of the new cards have already been distributed. Experts project that, by the end of the year, more than 600 million of the cards will be in consumers’ hands. The same experts estimate that 60% of credit cards issued this year will be of the new EMV type (they estimate 25% for the same measure of debit cards), although only 40% of retailers will be chip credit card compliant by year’s end.
The supposed deadline for card issuers to transition to the new EMV cards was October 1st, but this is obviously not a hard deadline. You can find all sorts of information on the new cards here.
Some merchants are already worried that distrust of the new technology will hurt their sales. Media giant Netflix (NASDAQ:NFLX) has already made this claim publicly, accusing new chip credit cards (either because they aren’t working or are deterring customers) for eating into the company’s disappointing sales numbers. Most of the card issuers have pushed back, however, bluntly saying that Netflix is lying to shift blame for a weaker quarterly performance.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.