Small business owners have likely heard about the switch to chip cards, but consumers may be less familiar with this new technology. The switch from magnetic stripes to microchips in credit cards is important because it means that payment standards have turned a corner, marking a significant shift in transaction capabilities, technology usage, data storage, risk mitigation, and fraud liability.
What are Chip Cards?
EMV cards are smart credit cards that are more commonly referred to as “chip cards,” or “dip cards.” Unlike traditional credit cards with magnetic strips that must be swiped and then signed for to authenticate the purchase, chip cards are dipped into a POS card reader and then a signature or PIN is required for authentication.
Chip cards contain microchips that are secured, unlike the magnetic stripes that they are replacing. These microchips are virtually impossible to copy and use maliciously like the previous stripe technology because the credit card details are encrypted when dipped and only unencrypted by the credit card payment network. This means that during the authentication, verification, and authorization steps a cardholder’s personal data is much more secure. This is a win for both cardholders and businesses alike because it cuts down on the risk of financial losses due to fraudulent usage and the subsequent legal disputes that can arise.
This is not a new technology by any means, but it has been gaining substantial popularity over the last two decades. In fact, EMV technology is actually already quite popular across the globe. In the US, early adoption of credit card usage prior to the creation of EMV standards led to an entire credit card infrastructure being implemented without EMV capabilities. When EMV started to become available, American businesses did not want to throw out their existing functional technology in favor of investing in upgraded terminal technology. However, in other parts of the world (like Europe) a lag in widespread credit card usage initially meant that when EMV technology was developed, terminals were created alongside this technology and invested in simultaneously. By the end of 2015, however, EMV will be considered the new standard in credit card processing globally.
Why are Chip Cards so Important?
The old versions of credit cards with magnetic stripes were convenient for users but they were open to security risks, which is why new chip cards were invented to provide the same convenience in a more secure environment. The notorious credit card fraud schemes that we have seen over the last few years like skimming card data or hacking POS terminals are largely non-existent with the data security protections in place as a part of this new chip card technology. Obviously, no technology is completely secure, but chip technology goes a long way in reducing the most common security vulnerabilities of the modern magnetic stripe credit card. In fact, the widespread usage of chip cards is expected to take a serious bite out of the multi-billion dollar a year business of credit card fraud, which is why most large credit card issuers are getting on board with chip cards. If you do not already have a wallet full of chip cards, be alert because chances are that your credit card providers will be issuing updated cards enabled with the newest chip technology to you soon.
Credit Card Liability
The use of chip cards does not simply mark a swing in technology usage though, it also marks a substantial shift in liability for in-person credit card transactions. Moving forward, businesses that do not accept chip cards will be held liable for any fraudulent credit card activity that occurs if one could have been used. In laymen’s terms this means that if a customer has a chip card and a business only has a magnetic swipe terminal, the burden for any financial loss as a result of that credit card information being compromised will fall squarely on the business’s shoulders. If fraudulent activity occurs when a chip card is being used in a chip terminal, the bank will be responsible for damages and the business will be exempt from fraud-related chargebacks (subject to their merchant agreement). For this reason, millions of small businesses are upgrading their existing technology to comply with these new credit card standards. So be on the lookout for your favorite stores and restaurants to start making the switch to chip card readers if they have not done so already.
Steven Pierce is a senior financial analyst with a large multinational corporation as well as the “behind the scenes” guy here at LionShark. He handles all of our financial and technological needs with ease and we’d be absolutely lost without him! He’s an avid reader and tech enthusiast that prides himself on staying at the forefront of news and technology. His geekery is practical enough to make him interesting at parties and may win him a fortune on Jeopardy someday. Want to pick his brain? Email him with your questions!
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