Smart cards, chips and you

This year most major financial institutions instituted new chip debit and credit cards. The U.S. Payments Forum estimates 600 million cards have been issued to consumers.

So what is the chip card and how does it protect me? Glad you asked. You have probably noticed the micro-chip located above your card number. The Europay/Master Card/Visa chip is often called an EMV chip. The purpose of the chip is to protect consumers from huge security breaches.

Think back to the Target, Home Depot and Sony data breaches, where consumer information was compromised. Scary right? At this point, the major credit card companies decided to work together to prevent security breaches and institute EMV chip cards in the United States.

European countries and Canada have been using this system for decades. According to a report by payment-processing company First Data, “it’s now estimated that 90 percent of non-U.S. credit card terminals are EMV chip card enabled.”

Let’s take a look at the Target data breach (No, I am not picking on Target. It’s the most recent data breach that everyone remembers). In 2013, during the holiday shopping season Target was hacked. According to Target, over “70 million customers had information stolen” including names, emails, telephone numbers and addresses.

After the fallout, Visa, MasterCard or the bank that issued the card were liable for the erroneous charges. According to CNN Money, the banks sued Target, and Target settled to the tune of $39 million. The banks’ lawsuit resulted from their liability for the fraudulent charges and desire for Target to bear responsibility for a portion of the cost.

Enter the new EMV Chip cards. In the example discussed above, the bank was liable for the fraudulent charges. With the EMV chip card, the liability for fraudulent charges will now be on the party that is the least EMV compliant.

For example, you use your EMV chip card with a merchant that has not upgraded to a chip-enabled card reader and your information is stolen. The credit card company, having issued the card with the chip and updated its security, is compliant. The retailer is responsible for those charges and other losses associated with your stolen identity for being the least EMV-compliant.

Now that you have a better understanding of the chip card, here a few things to consider as you make the transition to EMV chip cards:

▪  It will take more time to process transactions. You have to leave your card in the card reader throughout the entire transaction. If you take it out too soon, you will cancel your transaction.

▪  If you are using your card at a chip-enabled card reader, there may not be an option to use credit when checking out. You will have to enter your unique PIN code to finish the transaction.

▪  The new technology will not protect you with online shopping. The Federal Trade Commission states “There will be no change in the way you use your card online or by phone.”

▪  It is a good practice to regularly monitor activity on your account. Most financial institutions and credit card companies issue paper statements and also provide online options for monitoring your accounts. In this case, a pound of prevention is worth more than an ounce of cure.

This story was originally published November 9, 2016 at 3:01 PM with the headline "Smart cards, chips and you."