You got your new chip credit card. Now, every time you go to a store, there's confusion over whether you insert or swipe your card. You've heard that this has something to do with security, but what exactly is the point?
Stopping Credit Card Fraud
The amount of credit card fraud and other forms of identity theft tops $16 billion per year. Credit card issuers spend an average of $12.75 to replace each individual card that is reported stolen or is part of a large-scale data breach.
While consumers almost never directly pay the costs of credit card fraud — the usual result is full reimbursement of the fraudulent charges and a replacement card issued for free — fraud protection comes at a hidden cost. Banks raise interest rates and annual fees to cover their losses. If merchants aren't reimbursed for their losses by the bank, they'll also raise prices.
Ending Counterfeit Transactions
One of the biggest sources of credit card fraud is counterfeit cards. Also known as cloning, this accounts for 37 percent of credit card fraud.
Thieves create counterfeit cards by stealing credit card numbers and expiration dates from consumers' credit cards. They then create their own card with your information and use it in stores. To get the information, they might hack into large databases, or they can use skimming devices at places like gas pumps and vending machines.
The problem with magnetic strip cards is that this information is embedded right into the strip. Anyone with the right reader can take all of your information off of your card without you realizing what's happening.
With EMV chip cards, the information is still on your card, but it's scrambled. The chip essentially creates a secret code that's always changing. Your credit card information is different for every transaction, so even if thieves scan your EMV card, they won't be able to use it without the chip.
What About Places That Are Still Swiping?
Some merchants are still having customers swipe their magnetic strips instead of inserting their chips. This eliminates the security benefits of the chip, but you don't need to worry. As a consumer, you still receive the full fraud protections of your credit card whether you use the magnetic strip or the EMV chip.
The only difference between swiped and inserted transactions at this point is who covers the cost of fraud. Traditionally, credit card issuers have covered fraud losses out of their transaction fees and interest charges. Under the EMV liability shift, the store now pays for fraud losses if they don't use an EMV chip reader to process transactions.
What About Online Transactions?
Online transactions are largely unaffected by the new EMV chip technology. That's because the online checkout process remains the same — you manually enter your credit card information.
There are two schools of thought when it comes to online fraud. One says that it will decrease because it will be harder for thieves to skim credit card numbers. The other says that it will increase because thieves who find that counterfeiting is now too hard will look for easier frauds.
What Should You Do?
The good news is you don't need to do anything. While you might experience some minor inconveniences in store checkout lines during the transition, your credit union and card issuers are working hard to protect you behind the scenes. You can use your credit card comfortably knowing you still have full fraud protection.