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Worried about Credit Card Fraud?

Meet the EMV chip

The days of swiping your credit card’s magnetic stripe at the grocery store or dry cleaner’s counter are numbered. That’s because new data-securing EMV chip credit cards will soon “migrate” throughout the American payments landscape. Credit card companies have requested all retailers install new EMV-reading terminals and to begin using them by October 1.

The move means criminals will be less likely to counterfeit a debit card and go on a shopping spree. And consumers won’t have to spend time reporting a disputed charge to their bank or credit union or wait for a refund.

Financial experts estimate the cost of issuing the new EMV cards (the acronym for Europay, MasterCard and Visa) at $1.4 billion. The process will take several years to complete. That’s because many consumers still need to be supplied with new cards, and financial institutions need to update internal routing and processing systems. At the same time, brick and mortar retailers need to install new point-of-service terminals that read encrypted transaction data differently for each purchase. 

According to Bankrate.com, some chip cards will also require a personal identification number to complete a transaction. Others will require only a signature. EMV technology has been widely used in Europe and Asia and has become the standard type of credit card worldwide. Everywhere, that is, except the U.S. where card fraud is on the rise.

Cardhub.com reported that credit card fraud resulted in more than $11 billion in losses in 2012. Issuers (including banks and credit unions) and merchants incurred 63 percent and 37 percent of those losses, respectively. 

That’s about to change.

The financial industry expects fraud losses to decrease significantly once chip cards are in full use – and the credit card companies agree. Visa and MasterCard have developed initiatives encouraging retailers to accept EMV-enabled cards. They’re also reprogramming their computers to change the way they determine who pays for credit card fraud. 

So why was the U.S. behind? Some say it was because consumers didn’t ask for chip cards; they didn’t understand the chip card’s security benefits over magnetic stripes. Others suggest merchants and financial groups balked at the cost to issue new cards and pay for new point-of-service equipment. All are prepared for a major liability shift when consumers begin using EMV cards.

At Colorado-based Ent Federal Credit Union, work is underway to upgrade all 240,000 members to EMV-chip credit and debit chip cards.

Noting the significant industry cost to switch consumers to EMV cards, Chris Chippendale, vice president of enterprise initiatives and electronic banking at Ent Federal Credit Union, expects that time and resources spent will be offset to some degree by the anticipated decrease in fraudulent bank and credit union losses. 

“Almost weekly merchants are getting breached and card information is compromised,” he says, adding that it is currently the financial institution that issued the fraudulently used debit or credit card data that suffers the greater brunt of these compromises. By October, however, any merchant not using EMV cards for purchases – and has a customer’s data compromised – will be liable for losses. 

The financial services industry, he points out, wants the business community to be aware of this liability shift. “Our goal is not to have merchants liable, but for no one to have to take fraudulent transactions.”

Chippendale applauds credit union members who have already adopted the chip cards in order to maintain the safety of their own financial data. “It’s a wonderful best practice that we encourage,” he says. 

Regional President for Southern Colorado ANB Lonnie Parsons says his organization has also implemented a “test drive” of early-issue EMV chip cards. All bank customers will be supplied with new debit cards by October. 

“We’re allowing our customers to keep their same credit or debit card numbers so they won’t have to re-enter all their personal information if they pay bills online,” he says. 

Large retailer data breaches affecting tens of millions of Americans have been a “sore spot” for financial institutions, he adds. Until now, if a customer reported a disputed item to a large retailer, the local store might only be liable for $50 or so. 

“Banks and clearinghouses ended up absorbing most of those losses,” he says. The shift to EMV means increased merchant responsibility. That includes installation of new terminals where the cards can be “dipped” rather than run through a slider. 

“Bottom line: they need to make sure their data is protected, to keep people safe.”

A specialist in data safety, security and redundancy, NewTek Business Services also sells EMV terminals to retailers. CEO Barry Sloane says merchant demand is high and growing.

Clients like Ent, which is introducing its business customers to new EMV chip technology, he describes as “extremely progressive.”  

But while chip cards are a “step in the right direction,” he calls the move “a baby step,” in a world where Americans increasingly shop online. Their personal data – financial and otherwise – is too often accessible to cyber hackers. Tomorrow’s business, he predicts, will be encrypted and instantly transacted using smartphones, portable card readers and tablets. 

“But we’re sure busy. What I’m seeing is we’re like kids cramming for an exam. Most of us aren’t ready yet.”