When it comes to technology and innovation, America is considered a world leader—except in credit card technology. While we swipe our cards through a credit card reader, most other countries around the world rely on EMV technology to process credit card payments.
Beginning in October 2015, however, swiping your credit card will start to become a thing of the past. Here’s a closer look why.
The magnetic strip on credit cards used in the U.S. today contain all the information needed to make a purchase, including the account number, expiration date, and CVV code (the three-digit code found on the back of your card). This information never changes.
EMV credit cards operate differently. They contain a computer chip that encrypts the data in the card for each transaction, so no two transactions are the same. Each time you make a payment with an EMV-enabled card, the card’s chip provides a transaction code that can’t be used again.
In the United States, credit card fraud is big business. In 2012 alone, credit and debit card fraud cost over $11 billion.
One of the most common types of credit card fraud is called "skimming." Skimming occurs when thieves steal personal information from credit or debit card purchases through tiny devices called skimmers. This occurs most often on ATM machines and card readers, in restaurants, and at the gas pump. Because the information on the strip is the same for every transaction, thieves simply gather the data to make fraudulent purchases or even new credit cards with your information.
With an EMV credit card, however, the transaction code that can only be used once makes skimming and other types of fraud very difficult. Because the code can't be duplicated, the fraudulent card would be denied.
That’s not to say EMV cards are completely fraud-proof. Savvy thieves are always looking for new ways to access sensitive information.
Thanks to federal law, as a customer you’re not responsible for fraudulent activity on your card. That doesn’t mean that the bill isn’t paid, however. Currently, when credit card fraud occurs, the credit card companies and merchants share the costs. The credit card issuers pick up the majority, usually about 60%, with the merchant taking the rest.
This can lead to major lawsuits, especially when credit card companies don’t feel like they’re responsible for losses that are the result of poor security. (For example, the massive Target credit card breach that occurred in 2013.)
Who picks up the tab for fraud is one of the major reasons behind the shift to EMV. Beginning in 2015 (and 2017 for gas stations), liability will change. If a merchant hasn’t upgraded to EMV technology and fraud occurs in their store, they will be liable for the costs if their customer has a chip card. At the same time, if a merchant has EMV terminals, but the customer’s credit card company or bank hasn’t issued a new card, then the bank or credit card company becomes responsible for fraud.
Once magnetic stripe credit cards become a thing of the past, everyone—from credit card issuers to merchants to customers—will benefit from the increased security.