Have you noticed the little gold chip on the front of your debit/credit cards? Many cardholders have no idea what that is or why it is there. The past several months, banks have begun issuing replacement cards, called EMV chip cards that contain this gold chip because of the transition to EMV payment transactions this fall. EMV cards will help reduce counterfeit fraudulent charges and make in-store payments more secure.
How does the chip work?
The chip in an EMV card contains a tiny microprocessor that will send a unique, one-time-use encrypted code to the terminal during a transaction. This chip also stores and keeps your payment information safe and secure.
If a merchant has an EMV terminal, the chip card will need to be inserted chip-side up inside the terminal and remain in the terminal until the purchase is complete. Once the card is authenticated, cardholders will undergo two different possible methods to complete their purchase, depending on what terminal system the merchant has.
One is the chip and signature system, where cardholders will just sign their receipt as normal. The second is the chip and PIN system, where cardholders will have to enter a four-digit personal identification number, like they would with debit cards.
Who will get chip cards first?
According to Bankrate.com, chip cards will be issued to the following criteria of users first:
- The most active card users
- Higher risk customers that live in areas with higher incidences of crimes such as skimming
- Frequent international travelers
- Users who request a debit/credit chip card from their banks themselves
Do other countries use chip cards?
Yes –chip technology has been around for over 30 years and the U.S. is one of the last countries to integrate chip cards for payments. According to EMVCO, 84 percent of cards in Europe have chips and 97 percent of transactions are processed with chips. Chip cards are also used in South America and Mexico, with over 60 percent of cards containing chips.
How are chips secured?
Chips protect in-store transactions by using the one-time-use encrypted code. It is nearly impossible for fraudsters to duplicate this unique code for counterfeit purposes, thus providing tighter security for transactions. Likewise, if confidential payment information from a business is compromised, hackers will not be able to use that information to create fraudulent credit or debit cards nor will they be able to make any additional purchases since the information is encrypted.
The adaption to chip cards will take time, but it is important to become informed on how they will transform the payment industry. As an EMV liability shift goes into effect on October 1st, many merchants will begin actively upgrading their terminals to accept chip cards and banks will see demand for chip cards from consumers.
Questions? Contact First American today to learn more about chip card technology!