10/30/2015

A Mercifully Short Guide to Credit Cards with Chips
Beverly Harzog/Guest Contributor

30 October 2015

It’s only been a few weeks since credit cards with chips started showing up in your mailbox. But in the days of 24/7 news, that’s plenty of time for the media to create drama. Seriously, you’d think the fate of the world hinged on these cards.

Now, I do know that there’s a lot of confusion out there about chip-enabled credit cards. Part of the problem is that I can tell that some websites don’t even know what to call these cards. I came across a major website that thinks we all got chip-and-PIN credit cards. That’s not even close to being the truth!

So I’m going to clear things up for you and I’m going to do it in record short time for such a technical topic. It’s important to have a working knowledge of these cards. But that’s all you need. So sit back in your chair and relax. You probably won’t even need a stiff drink to get through this, although I’m not making any promises…

In the next few paragraphs, I will tell you all you need to know. For starters, let me say that in terms of your relationship with your credit cards, not a whole lot has changed. So once you read this, you can go about your business as if the world still only had magnetic-stripe credit cards.

What do credit cards with chips look like?

These cards look just like your regular plastic cards, but there’s a chip emblem that signifies that there’s a a tiny high-tech chip inside.

On the new card, the gold square that looks like a puzzle means that there’s a computer chip inside. (It can be) gold, but the square could also be silver on one of your cards.
 

I’ve noticed that these cards are being called a variety of things in the media, including EMV cards, which stands for Europay, MasterCard, Visa. These are the three companies that created the standards for the chip card. There’s still a magnetic stripe on the back, so if you’re in a store that doesn’t yet have the proper equipment to process a chip card, you can still swipe it.


Chip cards are also called “smart cards” and chip-and-signature cards. In Europe, chip-and-PIN credit cards are used, but most of the cards being sent out by U.S. issuers right now are chip-and-signature credit cards. A few issuers offer chip-and-PIN credit cards now because the PIN adds another level of security, but the majority of issuers will be addressing this in the future.

Oh, and speaking of security, the CVV (card verification value) will still be there. This is the 3- or 4-digit number that you’re asked for when buying things online. Sometimes, this number is referred to as the CSC (card security code).
Why are credit card companies making this change?

Credit cards with chips are much more secure than the magnetic-stripe cards. The latter is so easy to clone. If a fraudster gets your account numbers, the thief can easily make a counterfeit card and go on a shopping spree. The magnetic stripe contains valuable account information that doesn’t change and it’s easily copied.

With the chip cards, the information is dynamic, so it changes with every transaction. There’s a unique transaction code that authenticates each transaction. That code is not used again. So if a fraudster hacks into a retailer’s database and gets the account information and that unique code used in the purchase, it can’t be used in a cloned card. If the thief tried to use that cloned card, it would be denied.

However, chip cards don’t address “card not present” fraud. This is a situation, for example, where you key in your account numbers on a website or give the numbers over the phone. The merchant can’t “see” your card and confirm you’re the cardholder. And the unique transaction code doesn’t come into play in these situations.

The incidence of fraud due to cloning will likely decrease. But this could lead to an increase in online fraud. Thieves are drawn to the weakest link in the system. When it’s no longer easy to clone cards, fraud will shift online.

How do the chip cards work when I check out?

Instead of swiping, you’ll be dipping. You’ll see a terminal designed for the chip cards. All you do is dip your card in the terminal slot. It takes a bit longer than swiping, so be patient. You don’t remove it quickly. The terminal will tell you when the transaction is complete. But if you feel confused, just ask the cashier to help you through the process. Trust me when I say you’ll get the hang of this in no time at all.

Here’s a video on Chase’s website that shows you how to use a chip card. If you’re at all uncomfortable, just view this and it will put you at ease.

I already mentioned that there’s a stripe on the back so you can still swipe the card, if necessary. Vendors have ample incentive to get the new equipment for chip cards in place. The deadline was October 1, 2015. On that date, liability for fraud switched to the vendor if they aren’t equipped to process credit cards with chips.

Many have wondered if the stripe on the back negates the security offered by the chip. Can’t a thief just clone the card from the stripe? No. There’s data in the stripe that identifies the card as a chip card.

If you try to swipe a chip card (as a fraudster might do), an error message will occur and the person holding the card will be instructed to insert the card into the terminal to process the purchase.

Old vs. New: Are they the same except for the chip?

A few folks have already had issues because they had automatic payments set up with their old credit card. But then they got a new chip-enabled card that had a new expiration date or new account number. So compare your new card to your old card and make any changes required to update your payments system.

I was interviewed last week by CNN about this very issue and here’s the story if you’d like to explore it further: How you could get burned by your new credit card.

Can you stop checking your accounts online for fraud?

No, you still need to be diligent. That’s really the biggest message I want to convey. The only major behavioral change for you is that you’ll be dipping instead of swiping. Sounds like a new dance, doesn’t it? Anyway, the cards improve security, but do not eliminate the possibility. So you need to continue checking your credit card accounts online to look for unauthorized purchases.

In fact, there’s already a scam going on. This CNN story reports that, since there hasn’t been a consistent rollout, scammers are contacting consumers via email and telling folks that they need to respond to update their accounts to get the new card.

Your bank would never ask for financial data in an email. If you get an email like this, don’t click on any links, either, because that could install malware that might steal your data. Call your issuer and report this if it happens to you.

About Beverly Harzog

Beverly Harzog is a nationally recognized consumer credit expert and author of The Debt Escape Plan (Career Press, 2015) and  Confessions of a Credit Junkie: Everything you need to know to avoid the mistakes I made (Career Press, 2013). Visit Beverly's website at beverlyharzog.com.