Ever since the massive credit-card breach at Target and other major retailers, there’s been an outcry for more secure credit cards. Both credit card-issuers and retailers now seem ready to transition from magnetic-stripe credit cards to EMV-enabled credit cards, also known as smart cards. Here’s a quick recap of what we learned earlier: Europay MasterCard Visa is a set of global standards for smart cards, which was created to ensure that EMV credit cards and payment terminals work together successfully.
What Exactly Is a Smart Card?
EMV cards are called “smart cards” because they have an integrated circuit chip (ICC) embedded in them. They have been used in Europe and Asia for a very long time to reduce fraud. In Europe, many EMV cards are called “chip and PIN” because they require a PIN to be used, similarly to the way America debit cards work. Chip-and-signature cards are another type of smart card, which only require a signature. They are not as secure as the chip and PIN but are still considered better than plain magnetic-stripe cards. We’re likely to see both types of cards in the U.S. over the next few years.
If other countries have had EMV cards for some time, why did the U.S. just recently get into the act?
Simply put, the transition from magnetic-stripe cards to EMV cards is expensive for both issuers and merchants. For the issuers, it’s much more expensive to produce smart cards, and for retailers, the equipment required to process transactions with smart cards is also costly.
How Do They Help?
You’ve probably heard of credit-card skimming, a common scenario in which you hand your credit card to a waiter, who swipes your card on a skimming device that captures the account info before returning it. With your account data, the thief can create a “clone card” and make purchases with it. This is known as counterfeit fraud.
According to the Smart Card Alliance, when an EMV card is used, each transaction is encoded differently, so even if the transaction data is intercepted, it can’t be used to make new transactions. Most of the EMV cards you’ll see will still have a magnetic stripe on the back, but new technology will make it difficult to counterfeit.
What EMV Cards Won’t Fix
Smart cards and their technology cannot rid us of online fraud. Security experts predict that when cloning stops working, the incidence of online fraud will increase, so don’t get a false sense of security after your credit cards go “smart.”
How Soon Will the U.S. Get Them?
The recent retailer-hacking scandals created pressure to move to smart cards as soon as possible. Visa and MasterCard have given retailers an October 2015 deadline to make the transition. If retailers aren’t ready to accept smart cards by that date, they will be held liable for fraud. That’s a pretty good financial incentive for merchants to buy the necessary equipment.
The Bottom Line
Credit-card fraud is on the rise; it’s essential that the U.S. switch to EMV cards to increase security. The new smart cards will not entirely eliminate fraud, but the extra layers of security are expected to reduce counterfeit fraud by a large margin, and they’re a much better option than the magnetic-stripe cards we’re currently using. ■
Look for my research results on the cost incurred by salons in order to begin accepting “smart cards” in an upcoming issue!
