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What You Need to Know About EMV Chip Credit Cards

Find out how technology is changing credit cards, what it means for shoppers, and whether the updates will really keep us safe from fraud.

By
Laura Adams, MBA
5-minute read
Episode #410

What You Need to Know About EMV Chip Credit CardsIf you have credit cards, you’ve probably been receiving new ones in the mail that look different than the old ones.

The reason for the makeover is that there’s a major change rolling out this year that requires every customer’s card to have it’s own embedded microchip.

In this episode I’ll give an overview of the new chip technology, how it affects the way you use your card, and whether it will really keep you safe from fraud.

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Why Are Credit Cards Changing to EMV Chip Technology?

Did you know that the U.S. has had the most credit card fraud in the world over the last 5 years? We only make up 24% of all credit card sales, but we’re responsible for nearly 50% of fraud worldwide!

One of the reasons we get hacked is because our credit card processing technology is a dinosaur compared to other countries. The problem with old-school, magnetic-stipe cards is that they contain static data that can be easily cloned.

Some of the huge retail scandals, like the one with Target, have shined a bright light on our vulnerability, putting pressure on the card industry to make sweeping changes—and fast. Thankfully, the hammer is coming down this year and the U.S. payment system will be forced to take a big step forward.

EMV cards use a unique process that determines if the card is authentic, which makes it more difficult to counterfeit or copy.

What Are EMV Credit Cards With Chip Technology?

As of October 1, 2015, the new global standard for credit cards is called EMV, which is short for its developers: Europay, MasterCard, and Visa. It’s a more secure system that uses a computer chip to transmit your information.

EMV-enabled credit cards are known as chip cards or smart cards and they’ve been around since 2002. EMV technology is being used in over 130 countries, such as in Europe, Asia, and South America, to help prevent fraud.

Unlike magnetic-stripe cards, chip cards use a new encryption for every sale. They transmit a variable algorithm with each transaction that’s much more resistant to fraud. EMV cards use a unique process that determines if the card is authentic, which makes it more difficult to counterfeit or copy.

See also: How to Use a Balance Transfer Card to Get Out of Debt

What Chip Cards Mean for Merchants

The reason it’s taken the U.S. so long to join the smart card party is because it’s expensive for both credit card issuers and merchants who must produce new cards and buy upgraded equipment.

However, there’s a huge incentive for merchants to make the investment in EMV-enabled terminals that can read smart cards. With the pre-EMV system, credit card issuers bear the burden of fraudulent charges.

But after October 1, if a merchant doesn’t have a smart card terminal, they’ll be liable for fraud—not the card issuer.

Merchants can either upgrade their system and eliminate risk, or use their old terminal and be on the hook if someone pays with a lost or stolen credit card.

So, issuers are furiously producing and mailing out millions of chip cards and merchants are getting bombarded with new rules and offers to purchase EMV-compliant equipment.

See also: 3 Top Online Banks and 8 Banking Security Tips

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About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.