Chipping in: Banks say new credit cards will cut down on fraud charges

By Tony Wittkowski | Business Reporter | The Herald-Palladium

ST. JOSEPH — Increasing rates of counterfeit card fraud is forcing U.S. issuers to adopt a different technology in order to reduce the costs of fraud and protect consumers.

EMV – which stands for Europay, MasterCard and Visa – serves as a global standard for cards equipped with computer chips and the technology used to make card transactions authentic. Thus, the nickname “chip cards.”The switch to EMV means adding new in-store technology and processing systems for merchants and retailers. For consumers, it means activating new cards and learning new payment processes.

Through all this hassle comes greater protection against fraud.

Crystal Little, Honor Credit Union’s card services manager, said a chip card is a credit or debit card with a traditional magnetic stripe and an embedded microchip for added security.

“The embedded microchip provides unique data specific to your card and the transaction being processed,” Little said. “These security features make your chip card extremely difficult to counterfeit.”

While U.S. merchants switch to new terminals, these chip cards will have the usual magnetic stripe on the back to allow consumers to continue using the card at ATMs and point-of-sale terminals. The chip cards stand out from the traditional magnetic stripes because they are equipped with a small, metallic square in the top left-hand corner of the card.

About 120 million Americans have already received an EMV chip card. That number is projected to reach nearly 600 million by the end of 2015, according to Smart Card Alliance.

Different data

The magnetic stripes on traditional cards contain unchanging data.

Once this data is obtained, the appropriate cardholder information necessary to make purchases is compromised. That leaves traditional cards the prime target for counterfeiters.

EMV technology does not completely prevent data breaches, but makes it harder to successfully profit from what is stolen.

Randy Reimers, who serves as the Fifth Third Bank community president in Southwest Michigan, said an EMV chip card has unique information linked to a specific purchase, making it harder for counterfeiters to duplicate the process.

“The approval number in each transaction changes and only applies to that individual transaction,” he said. “In the past, an approval number was assigned to each card and you could use that card at any location and that same number would pop up. People could duplicate that card’s approval number and charge things fraudulently.”

Reimers said the EMV technology was developed in the mid ’90s and grew in popularity throughout Europe. In April 2013, Reimers said he noticed U.S. banks began the process of bringing it here.

Getting the card

The change is expected to be somewhat fluid for the rest of the calendar year.

Aite Group, a national research and investment company, estimates about 70 percent of credit cards in the U.S. will support EMV by the end of 2015.

However, EMV debit cards will roll out at a slower pace.

The PULSE 2015 Debit Issuer Survey found that while 90 percent of financial institutions have begun issuing EMV debit cards, only 25 percent of U.S. debit cards will be chip-equipped by the end of 2015.

The percentage of EMV debit cards in consumers’ hands is expected to reach 73 percent by the end of 2016 and 96 percent by the end of 2017.

The large majority of chip cards are coming from larger issuers like Bank of America and Chase. The cost of chip card transition is causing smaller banks to convert their cards more slowly.

Reimers said his branch of Fifth Third Bank started issuing EMV cards Sept. 29 and will continue to do so in three separate waves. Honor Credit Union announced the transition is still forthcoming, as it will occur naturally when cards begin to expire and are replaced with EMV cards.

When it comes to using EMV cards, consumers are no longer required to swipe their cards. Chip cards are inserted into a terminal slot and are left there to process, similar to an ATM.

Reimers said when retailers do bring in new EMV equipment, the traditional magnetic stripe cards should still work.

“Even if they don’t have the chip card they can use their current debit and credit cards,” he said. “There is normally a slot on the right side so they can swipe them through the machine.”

Contact Tony Wittkowski at twittkowski@TheHP.com or (269) 932-0358. Follow him on Twitter: @tonywittkowski.

(Author’s Note: This article was originally published on Oct. 1, 2015)

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