credit card chip transaction
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If your credit card issuer has replaced your swipe card with a chip card that is inserted into a terminal slot, you may wonder why such a drastic change to business-as-usual has taken place. Banks are telling their customers that chip technology soon will become the standard in the U.S. and that making purchases with a chip-enabled card will provide better protection against fraud.

How the chip card works

The chip technology is already being used in over 130 countries. The problem with the old swipe-only cards appears to be how easy it became for thieves to steal financial information off the magnetic stripe during a transaction and then reproduce it on a fake card.  In fact, prior to the introduction of chip cards, one-third of all credit card fraud in the U.S. could be traced to a criminal lifting information from a magnetic stripe.

One of the things that made the magnetic stripes on traditional cards so attractive to crooks was the fact that they contained data that never changed. Once the bad guys reproduced that financial data onto another card, they could use it until the fraud was discovered and the card was canceled. What makes the chip card, also known as an EMV (Europay, MasterCard, Visa) card, unique is that every time it’s used for payment, the card chip creates a unique transaction code and that code can never be used again. Say you are at the grocery store and a hacker steals your chip information during the checkout process. That hacker would be unable to use the information because the transaction number he stole was for that sale only and can never be used again.

Criminals already are shying away from countries that have transitioned to EMV, making experts hopeful the same will happen in the U.S.

Merchants need time for the transition

Prior to Oct. 1, 2015, credit card issuers were responsible if fraud took place. However, working together, MasterCard and Visa announced that any merchant that did not install new terminals that accepted EMV cards would be held responsible in the event of fraud. Some stores, such as Target, quickly got on board, but many did not. In addition to cost concerns, retailers were afraid the new technology would interrupt holiday shopping, and were frustrated by how long it took to get the new software they needed to make each terminal work. Customers were confused by the fact that so many stores had EMV terminals, only to be told that they were not operational.

Once a terminal is in place and the merchant has loaded the necessary software into its back office systems, the new terminals and merchant must undergo a certification process with each card network. The line for certification in 2016 was quite long, further frustrating retailers.

Benefit to consumers

In spite of holding only 24 percent of the world’s credit cards, U.S. residents are victims of 47 percent of the world’s credit card fraud cases.

The good news is that credit card fraud has fallen since the rollout of EMV cards. Chip-enabled retailers experienced a 43 percent drop in fraud from October 2015 to October 2016, according to Visa. MasterCard reported a 54 percent drop in fraud costs from April 2015 to April 2016 among EMV-ready retailers.

While you, as the consumer, are not responsible for covering fraudulent charges, the hassle involved in proving you did not make those charges and getting your credit back on track can be a logistical nightmare. The hope is that EMV cards will decrease the odds of you ever having to argue your case with your creditors.

Use Bankrate’s calculator to figure out what it would take to pay off your credit cards.

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