The old swipe-and-sign method of paying with a credit card may soon be a thing of the past.
By fall next year, many credit and debit cards with a magnetic stripe will be replaced by cards embedded with a microchip.
The new cards look and feel like a regular credit card, but are far more difficult for crooks to counterfeit.
Shoppers slide the cards into a slot, and the terminal reads the chip.
A customer signs for the purchase or punches in a personal identification number.
Each time a chip card is used, a one-time code is created that’s needed to approve the transaction, which provides an additional layer of security. This feature is nearly impossible to replicate in counterfeit cards.
It’s called EMV technology and it was developed by Europay, MasterCard and Visa.
These companies are driving the change in this country by shifting the liability for counterfeit fraudulent activity to merchants who can’t process EMV chip cards beginning Oct. 1, 2015.
Retailers who don’t upgrade to chip card terminals can still read the new cards, but they become liable if any counterfeit fraud takes place during the transaction.
The technology isn’t new. Chip cards are the standard in Europe. In places in which these smart cards are used frequently, counterfeit fraud is significantly lower.
Credit card fraud has received more attention lately after several massive cyber-attacks of major retailers.
Last year, crooks stole personal or credit card data for millions of people who shopped at Target. Credit card executives told senators at a Senate Judiciary Committee hearing in February that those kinds of attacks would be harder to pull off once EMV technology is implemented.
The U.S. is the last major market in the world to make the shift, partly because there hasn’t been an incentive until now. The cards are more expensive for banks to issue and many merchants don’t want to buy new terminals to read the cards.
Many major retailers are gearing up for the change.
Banks are weighing when to start issuing the cards, including BECU, which serves nearly 900,000 members.
Fraud is a significant issue for banks. BECU spokesman Todd Pietzsch declined to say how much the credit union loses to fraud each year, but he did say that one similar in size to BECU would lose “easily several million dollars a year.”
The credit union has to weigh the value of issuing chip cards before next fall when most retailers don’t have the terminals to read the cards.
The cards cost two or three times what a regular credit card costs. It might make sense to issue the new cards to customers who plan to travel overseas.
“We want to do what’s in the best interest of our membership,” Pietzsch said. “We’re evaluating the options.”
While EMV technology does a good job of preventing fraud at what are called “card-present transactions” — the shopping you do with your credit card in hand — it doesn’t make shopping online any more secure, said Bob Watford, a product manager for BECU.
Other solutions are being explored to combat fraud online, he said. One idea is tokenization. Instead of submitting a full credit card number, an account is tied to a digital “token,” a cryptogram for that transaction that includes the last four digits of the card but not all the sensitive data.
The future may not involve any card. A system like Apple Pay, a mobile payment service available on some Apple devices including the iPhone, allows customers to use their phone at the checkout. IPhone users authenticate the purchase by holding their fingerprints to a sensor on the phone.
“Maybe there will be more applications like Apple Pay and individuals won’t need a card,” he said.
Whether Apple Pay, which just launched, becomes widely used is yet to be seen. This weekend CVS and Rite Aid both shut down the service. A Rite Aid spokeswoman told the New York Times the company is “still in the process of evaluating our mobile payment options.”
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