New chip technology fights credit-card fraud at retailers

If you are like me, you have received a number of replacement credit cards in the past several months, even though your current card is nowhere near its expiration date.

The driving force behind this is the growing amount of credit card fraud occurring at retailers, like those memorable cases involving Target and Neiman Marcus.

While most of the rest of the world stopped using vulnerable credit cards with the easily copied magnetic strips many years ago, the United States has failed to adopt newer technology that is much more fraud-resistant.

That is changing as of Oct. 1 this year.

EMV chip technology (EMV stands for Europay, MasterCard, and Visa – the three companies that innovated this more secure type of credit card technology) has been around for quite a while. Europe began using the technology around 2005.

Cards with EMV chips are inserted into the credit card reader (rather than the swiping that we are familiar with), a cryptogram code is generated for one-time use, and the transaction is approved or declined.

The one-time-use cryptogram code is the primary security feature, because fraudsters are unable to create a fraudulent chip that would generate the same code as the real card.

For now, the major impact of this will be felt by retailers in the form of liability for fraudulent transactions.

Currently, if a fraudulent transaction occurs, the card issuer has all liability for the transaction. Starting Oct. 1, if a customer presents a credit card with the EMV chip, and the retailer does not have a credit card reader that is capable of processing EMV chip, the retailer now has the financial liability for any fraudulent transaction.

Many existing credit card readers are already EMV-capable; they just need a software update to allow the hardware to process EMV cards.

About two-thirds of the existing credit card readers are not capable of reading EMC cards, so the retailer will need to decide to either upgrade their hardware, or begin to bear the liability of any fraudulent transactions.

For consumers, there is little added benefit for now, other than knowing that it will be harder for their credit cards to be forged and used in a retail environment.

We still need to wait for improvements in security for Internet-based transactions. This could occur in the form of having the EMC chip generate a one-time-use code that would be typed into the Internet order form.

If you are curious about whether or not your current credit card has an EMV chip, you can tell by the presence of a small rectangular metallic plate on the upper left portion of the front of the credit card.

Eventually, the existing magnetic strips will no longer be placed on credit cards as all the credit card readers get replaced with the newer technology.

So if you are a retailer, you need to think about upgrading your POS equipment to read EMV cards, or decide to accept the financial risk of fraudulent transactions.

If you are a consumer and you have received your new credit cards, be sure to activate them and shred your old cards.

Source: http://www.recordonline.com/article/20150913/NEWS/150919715

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