What That Chip in Your New Credit Card Means for You

Better security and, for a while, confusion at checkout. Here's what you should know.

A customer makes a payment using a card with an EMV chip.

A customer makes a payment using a card with an EMV chip.

Photographer: Simon Dawson/Bloomberg

The credit cards in most Americans’ wallets are pretty much antiques. They’re easy to counterfeit, thanks to magnetic strips that rely on basically the same 1960s technology used in cassette tapes.

At last they're getting an upgrade, giving them the technology, called EMV chips, used almost everywhere else in the world. The first day of October will be an important date in making this happen. 

Some questions and answers:

What's an EMV chip?

An EMV chip is a small computer chip in the front of the credit card that lets the card and the card reader engage in a digital conversation, sometimes called a handshake, to authenticate the transaction. EMV chips (after Europay, MasterCard, and Visa, the companies that created the standard) can’t be copied and counterfeited the way a magnetic strip can. 

A Visa credit card featuring an EMV chip.
A Visa credit card featuring an EMV chip.
Photographer: Kristoffer Tripplaar/Sipa USA

 

What happens on Thursday?

Card issuers and retailers are already gradually switching to the new technology. October will mark a shift in liability for fraud that is designed to prod retailers to move faster. Usually card issuers are responsible for the costs of credit card fraud. After Oct. 1, retailers that haven’t upgraded to EMV point-of-sale terminals will be liable for fraud that occurs at their stores. Card issuers are still liable for any fraud on cards that don’t have the new technology.

If I don’t have a chip in my card, is that bad?

Not for you. Someone else, either the card issuer or the retailer, will still be liable for fraud that happens on your account. And you’ve got plenty of company. By the end of the year, only about 36 percent of Americans’ credit cards will have EMV chips, Javelin Strategy and Research has estimated. That should jump to 67 percent by the end of 2017. Debit cards are even further behind: Just 13 percent will have EMV chips by the end of the year.

One obvious advantage of an EMV chip is that it facilitates making purchases while traveling outside the U.S. According to the Smart Card Alliance, almost 80 percent of checkout terminals in Canada, Latin America, and the Caribbean read EMV cards. In parts of Europe, 95 percent of terminals are EMV-compatible.

How different is the checkout process with EMV cards?

“For consumers, there is going to be a bit of confusion,” said Michael Moeser, director of payments at Javelin. Shoppers are used to swiping their cards quickly and putting them back in their wallets, sometimes before a cashier even finishes tallying the sale. With EMV cards, they must wait until after the cashier is done before inserting the card into a reader, and then must leave the card in place for several seconds while the chip and the network communicate.

What might go wrong?

Expect longer lines, especially as people get used to the new procedures. Distracted customers may walk away with their cards still in the EMV reader, then rush back in a panic to fetch them. Even after clerks and customers learn how to handle the new cards, transactions will probably feel as if they take a little longer. Shoppers will need to learn to wait patiently as their cards complete their handshake with the  network.

How do I know if a retailer is ready to read my EMV card?

You don't. While most large retailers have already upgraded, or will do so soon, many small retailers and restaurants are still figuring out what to do. If you’re not sure, “it’s always safe to swipe first,” said Jamie Topolski, director of alternative payment strategies at financial technology company Fiserv. If you have an upgraded card, you might then be told to insert it into the EMV reader. (You won't be charged twice, experts say.) 

Even if you spot an EMV reader on the checkout counter, it may not be turned on yet. That’s because retailers often need to upgrade not just equipment but software, too. For the same reason, Topolski warned that retailers converting to EMV might not initially be able to offer cash back on debit cards as they used to do. 

Will this kill credit card fraud?

EMV chips make it almost impossible to counterfeit your credit card. They don’t prevent fraud in online transactions. Expect fraudsters to migrate online or focus on shops that still can’t read EMV cards.

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