Within the next few years the bank credit cards in your wallet are going to get a whole lot smarter -- and you'll be better protected from the kind of fraudulent credit card transactions that can take a great deal of your time and energy to straighten out.
MasterCard and Visa both have announced in the past several months that they will be requiring U.S. banks that issue their credit cards to upgrade to EMV technology. (EMV stands for Europay, MasterCard and Visa, which were the partners that first introduced the technology in Europe.) The new credit cards have embedded microchips in them that help make transactions more secure. You'll also hear these cards referred to as smart cards, chip cards or chip and PIN cards.
Most U.S. credit cards today are the magnetic stripe, swipe style of card. Information about your credit card account is stored in this magnetic stripe without being encrypted (protected). That makes these cards relatively easy for thieves to duplicate, since they can obtain information from the card about your account number, the card's expiration date, and other security data, according to a recent article in Consumer Reports magazine.
The fraudulent use of credit cards in the United States is a serious problem both for credit card holders and for credit card issuers. Although U.S. consumers make about one-quarter (27 percent) of all credit card transactions worldwide, almost half of all credit card theft and fraud (47 percent) occurs in this country.
U.S. consumers are among the last credit card customers who are getting the benefit of the more secure EMV technology. Smart credit cards have been used successfully in Europe, Japan and other countries for several years, a fact that some U.S. citizens traveling abroad have found out the hard way. When they've tried to use their magnetic strip credit cards in some overseas locations, such as automated ticketing machines, they find the cards simply don't work because the new EMV technology may not accept magnetic stripe cards.
When you receive your own smart credit card, it probably won't look much different than the card you already have, but the transactions you make with it will be much more secure. That's because of the microprocessor in the card, which will communicate with the payment terminal using encrypted (specially coded) data. This secure, two-way communication prevents thieves from using a card reader to extract information from your card and then manufacture counterfeit cards from the data they obtain.
Although some EMV systems are set up to accept transactions with a customer's signature, others require that credit card holders use a PIN number for every transaction. The PIN number adds another level of security to credit card transactions.
EMV's wireless capabilities also will allow customers to use their credit cards without contacting the terminal at all -- a simple wave of a card close to a payment terminal will register the necessary account information. That helps increase your card's security in a location like a restaurant, since the waiter will no longer disappear with your credit card, but can actually bring a wireless terminal to the table so that your card never leaves your possession.
Some U.S. credit cards in circulation already have the smart card chip. Chase and Wells Fargo, for example, have both been issuing smart cards to some of their high-end customers, especially those who are frequent international travelers.
MasterCard and Visa have set an April 2013 deadline for the banks that issue credit cards to adopt the EMV technology. Retail stores, restaurants and anyone else who accepts credit cards will have until October 2015 to upgrade their system to accept the new cards. If they don't upgrade, they will be liable for any credit card fraud that occurs on their payment systems.
You'll be hearing more about smart cards as the deadlines for adopting EMV technology come closer. In the meantime it's good to know that your credit cards will soon be safer than ever for you to use.