With major retailer data breaches the last few years, and statistics indicating that 1 out of 5 Americans have experienced debit card fraud in the last 5 years, it’s no secret that debit card technology has been long overdue for a security upgrade. We’ve been hearing rumors for years about the full-scale roll-out of EMV, sometimes termed ‘smart card’ or ‘chip card’ technology, but banks are finally producing them to the exclusion of their magnetic-strip predecessors.
Rampant fraud has made it clear that magnetic strip technology provides very little protection from card theft., as thieves simply have to obtain your card number and swap it out with the magnetic strip on another card (even a gift card). Alternately, they can create an entirely new card using your data. Chip technology effectively eliminates this problem.
So how does it work?
The tiny integrated circuit on a chip card stores your payment information just like a magnetic strip, but with each transaction, creates a unique, one-time code that can’t be recycled. This means that even if a thief gets your payment information, they will be unable to re-use or reproduce these unique codes that verify the card’s authenticity.
Is it completely fraud-proof?
Although they significantly reduce credit card fraud (evidenced by statistics from European countries that made the switch years ago), chip cards don’t solve the problem of security breeches into a merchant’s database, so your card information is still vulnerable once it passes into their system.
Unfortunately, Internet-based transactions which don’t require a physical card won’t be as affected by chip security (although both Visa and MasterCard already has the technology to tackle this problem). This could lead to a surge in Internet debit card theft for a time as thieves shift their focus, and before Internet security programs can be fully implemented. Meanwhile, practice caution when making purchases online by always logging out of your account and ensuring the sites you use have secure payment protection.
So when can you expect to get your hands on one of these fraud-busting cards?
In some cases, as early as when you ask your bank for one. Major banks have shifted production already, while smaller institutions will take longer to fully integrate the switch. Considering the rate of the transition, experts estimate that by the end of 2015, 4 out of every 10 debit cards will be chipped cards.
Considering the switch to chip technology, why haven’t we seen many chip payment systems in stores?
Banks have been eager to push chipped debit cards because when their clients fall victim to fraud, they’re responsible for reimbursement. It’s estimated that U.S. banks pay out roughly 8 billion dollars a year for debit card fraud.
Most retailers, on the other hand, have been more hesitant to install the new chip-compatible systems. They don’t normally experience repercussions when fraudulent transactions pass through their systems, and the upgrade to chip-compatible systems represents a tremendous expense. Soon, however, they won’t have a choice. After October 2015, all merchants who aren’t compliant with chip technology will be liable for any losses to consumers that result.
How does this affect us?
Switching to an EMV debit card will offer greater protection for your account information and finances. At the same time, lack of merchant compatibility, major data breaches, or vulnerable Internet payments keep the technology from being 100% fraud-proof. Upgrade your card, but continue to use safe debit card practices.
David’s Note: Have you received a chip card yet? Do you care about the new technology? Have you ever had to use the chip instead of the magnetic stripe yet?