27 June 2015

Credit and Debit Cards with Chips Are On The Way! - Part 2

Posted in Market News & Events

Many Money reVerse readers have received a new debit or credit card that contains an embedded chip. 67% of respondents of my poll in early June 2015 noted that they had received a chip card already. I’m included in this group. By the fall of this year millions of Americans will be carrying these credit and debit cards that have the embedded chip technology.

The key reason for embedding chips in the bank cards is to improve the cardholder security.

Cards that do not have chip technology use a magnetic strip that is swiped when you make a purchase. The key thing about this method is that your credit card number (15 or 16 digits shown on the front of the card) is passed to the merchant and used to authorize / guarantee the payment between the bank and the merchant. Your credit card number is desired by those striving to commit credit card fraud. The 15 or 16 digit card number is key – literally. This number in the hands of the wrong person can be problematic for us as cardholders. These numbers, when stolen, are often used to fraudulently duplicate physical cards, make online purchases and possibly open other fraudulent accounts in your name thus making unsuspecting cardholders victims of identity theft.

Cards with embedded chips, when paired with updated card processing terminals in stores, will initiate processing that will result in a unique authorization code for each particular transaction being generated at the time of the transaction. The most important fact to note is that your credit card number will no longer be used for authorization and it will not be passed along to the merchant for this purpose. This lowers the exposure of your card number thus lowering the possibility of theft.

For this type of authorization to take place, the stores in which you shop will need to upgrade the credit card terminals that are at each Point of Sale station. When this is done, instead of swiping your card to pay for products and services, you will insert it into a machine slot like those at an ATM. You will then receive a confirmation from the machine that the card has been processed and it can be removed. One difference that we will need to note is that the card will need to be left still in the machine for a few seconds for the authorization to be completed unlike the quick swipe that we do today.

All chip cards are being shipped with the magnetic strips on the back like we have today. This allows the chip cards to be used in locations that do not have updated pay terminals. In the fall of 2015 we should start to see many merchants with updated equipment as we walk in armed with our new chip-embedded debit and credit cards. If you have an option to choose to use the chip or the swipe method, use the chip method every time for improved security.

With this processing change, we will need to continue to sign for payments based on the merchant’s guidelines. The added chips are not changing this requirement in this phase of the implementation.

Keep and eye on your mailbox and with your favorite stores to see these planned changes come to reality right before your eyes!

That's a lot to absorb. Got questions? Let me know by asking them by using the comments section here!


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