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New Credit Card Chip Rule: What You Need To Know About EMV

By Jennifer Deutschmann
Published on: 07:44 PST, Oct 1, 2015

The new credit card chip rule is meant to protect consumers against fraud with an added layer of security. Although the addition of EMV chips is being praised as “an important step forward,” some card holders are confused about the necessity of the chip and its specific function.

Historically, credit card information was stored in a magnetic stripe — which is located on the back of each card. Unfortunately, the data contained in the magnetic stripe can be accessed by thieves, who use the information to produce duplicate cards and make unauthorized purchases.

As reported by CreditCards.com, Europay, MasterCard, and Visa standards, commonly called EMV, include the addition of a small computer chip to each credit card.

EMV credit card chips differ from magnetic stripes in the way they convey and store information.

Thieves obtain identifying information from credit cards at the point of sale, either directly or by hacking into the payment source. This is possible with cards containing a magnetic stripe, as there is nothing to indicate a unique transaction — or to prevent thieves from using the transaction details to create a duplicate card.

The credit card chip rule will require the addition of a small metal chip, which assigns a unique transaction code to each purchase. Essentially, the transaction number becomes invalid at the completion of each sale. Therefore, information generated at the point of sale cannot be duplicated and used to complete other transactions.

The new credit card chip rule is expected increase credit card security and reduce costly fraud. Unfortunately, the system is not infallible.

Consumer credit expert Sean McQuay said consumers said the new credit card chip rules will not protect consumers making purchases online.

In order to be effective, EMV chips must be physically scanned at the point of purchase. Otherwise, the sale will not be assigned a unique transaction code.

As online fraud continues to increase, McQuay said consumers, including those with EMV chip cards, need to be diligent when making online purchases.

Consumers will notice a few changes associated with the new credit card chip rule. The most notable difference will be at the point of sale.

Although cards with magnetic stripes are swiped through a reader, cards with EMV chips must be “dipped” into a reading device. Consumers may notice the transaction takes longer than swiping, as the card must remain inside the reader until the transaction is complete.

EMV cards equipped with near-field communication can be processed with a contactless card reader. “However, in the U.S., most financial instructions are issuing contact cards.”

In most cases, the new cards will be processed similar to other credit cards, which require the consumer’s signature to complete the transaction. Although chip-and-pin cards will be issued by some institutions, they will likely be rare.

As reported by ABC News, retailers will be required to replace or upgrade existing credit card terminals to comply with the new rule. The cost of a new terminal is estimated to be between $500 and $1,000.

Although more than 300,00 retailers have upgraded their terminals to support EMV cards, an estimated 12 million are expected to make the changes in the coming weeks and months.

Beginning October 1, retailers will be responsible for any credit card fraud that is determined to be the result of noncompliance with the new rule. Gas stations, however, will have two years to install or upgrade credit card readers on gasoline pumps.

Many consumers are beginning to receive their new EMV debit and credit cards. However, it is estimated that credit card companies and financial institutions will have to replace a total of 16 billion cards to comply with the new credit card chip rule. Each card costs approximately $3.50 to replace.

[Image via Shutterstock]

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