Credit card overhaul will chip away at fraud

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Look carefully at your credit or debit card.

If it’s less than a year old, it likely has a “chip” on the front of the card. It is an icon with a dull sheen located near the card’s logo. If there is a shiny hologram on either the front or back, that does not count; it is not a chip.

The scary thing for me is that my credit cards are older. Only one has a chip.

But Oct. 1 is the cutoff for banking and business to begin officially converting over to credit and debit cards that include a chip. Cardholders were notified on their monthly billing statements to consider calling for a new card. Businesses were notified by hard copy from the banks and, in many cases, repeatedly by recorded messages on the telephone to change their card readers.

If the card has a chip on it, it was processed over the last year and is part of a new safeguard against bogus credit and debit cards. Businesses already are getting equipped with new machines to read credit and debit card chips to go along with the existing magnetic stripe while accepting payment for a sale.

Credit cards still have the magnetic stripe on the back so most businesses will accept them. At least until 2017 when the full conversion to chip cards is projected to be complete says Michael Riley of Stroudsburg, a manager for the Stroudsburg location of Heartland Payment Systems. Heartland is one of a number of facilitators that handle credit card payment processing for the four major banks that finance credit cards – Mastercard, Visa, American Express and Discover.

“A business with a mag strip reader terminal only can still accept the card. The difference is these cards will not have the latest and best security features,” Riley said.

Credit cards already using chips are called by the finance industry EMV cards, a global payment system which stands for Europay, Mastercard and Visa.

They’re the ones behind the changeover to make businesses EMV-ready, not federal or state government or the credit card brands.

The system leaves businesses less vulnerable to fraud for in-person transactions. Because EMV uses better data security, this standard is being adopted in the United States.

“That system has been in Europe for greater than 10 years. The U.S. is the last world superpower to develop this,” Riley said.

Riley said that an 83 percent decline in credit card fraud in Europe has been reported since the EMV chip card system was implemented there.

Businesses in the United States can still process credit card transactions with cards that have only magnetic stripes or if they still use machines that read the magnetic stripe only. Newer machines read both the stripe and chip to recognize a bogus card.

”All new terminals that accept the chip card still have a magnetic strip reader so cards will still be “swiped” instead of “dipped,” Riley said. “Swipe the stripe and dip the chip.”

Heartlandblog says that 66 percent of card present fraud in the United States comes from businesses accepting them.

And here’s a huge change: If that business processes a phony credit card, the burden of payment no longer will rest on the bank. It will rest on the business, Riley said. So a small investment in a new credit card reading machine now could avoid losing a lot of money later.

At least until the ID thieves figure a way to create stolen credit account numbers into cards with the chip.

So how does the piracy happen?

There are three levels – credit cards are issued under a company brand but the next level is that they are financed by a bank. A Chase Freedom card, for example is financed by Visa. Then comes the third tier – the transaction goes to a third party facilitator to process the payment of the purchase back to the credit card brand. Heartland, First Data and World Pay are three leading facilitators.

“Banks are not credit card processors. That’s a big misperception,” Riley said. “They subcontract to the third party, the facilitator.”

It’s during that process that data breaches occur.

Another way can occur on a smaller scale during a business day when a business collects all of its credit card transactions and transmits the batch at the end of the day for processing, but that data could be intercepted en route and phony credit cards can be created. Those pirates at this point are not able to recreate the chip with it.

That’s where business owners need to get on board with the new technology.

In time, some businesses would prefer debit card transactions anyway because they’re less expensive to process. Each swipe of a stripe and each dip of a chip on a transaction costs the business 10 cents. For each basic transaction, the business pays the bank 1.51 percent of the sale. The high end reward cards obligates the merchant to pay the bank 1.95 percent of the sale.

Sure a debit card transaction costs 22 cents per swipe, says Riley, but that transaction costs the business only .05 percent of the sale.

So check your credit card and, if it does not have a chip, you may want to call that credit card brand right away and request a new one.

Source: http://www.poconorecord.com/article/20150919/NEWS/150919393

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