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No one really knows what to expect when they use their credit cards come October 1st. This is the date of the so-called liability shift when America transitions to chip-enabled cards. Retailers and credit card issuers are supposed to be on-board with the new smart chip protocols, often referred to as EMV (Europay, MasterCard, Visa) cards or EMV chips. The transition could be nice and smooth, or it could be plagued by cardholder and merchant confusion and computer glitches.
Right about now, some of the general public are starting to panic, as it doesn't seem like everyone is going to be ready on time. One study conducted in September 2015 by Software Advice found that:
- Almost two-thirds of consumers haven't been issues EMV cards
- Only 22% of small - medium sized businesses (SMB's) are EMV-compliant
- 14% of US consumers that have an EMV card have not used it
- By the end of 2015, 70% of U.S. credit cards and 41% of debit cards will be EMV chip cards
Let's look at four of the most common myths about the liability shift and why they are wrong.
October 1st is the deadline for cardholders and retailers to be smart chip compatible. Rather than facing a Y2K-like hard deadline, the industry designed this rollout program several years ago to strongly encourage, but not require, retailers and card issuers to upgrade their systems. The term "liability shift" refers to the fact that the expense of credit card fraud will shift between card issuers and retailers, depending on which one failed to upgrade their systems. So if a bank issues an EMV equipped card, but thieves circumvent it by going to a retailer without an EMV compatible terminal, the retailer will be held liable. On the contrary, if a retailer properly upgrades its terminals, but the consumer experiences fraud due to the magnetic strip being used on a non-chip card, then the card issuer bears the responsibility.
Cards with EMV smart chips will be more secure for cardholders. Did you notice that the two parties in the liability shift are the retailer and the card issuer? Both before and after October 1st, consumers will always be protected by the Fair Credit Billing Act, which says that cardholders are never liable for more than $50 in fraudulent charges. Yet in practice, nearly all card issuers waive that requirement and have a zero liability policy in place. Think of it this way, if your bank installs an even bigger safe, is your money more secure? No, because you are legally protected (by federal deposit insurance) either way. Only the bank's money might be more secure, not yours.
The United States will now be using the latest, most secure technology. EMV, which stands for Europay, MasterCard, and Visa, has been in use in Europe and other parts of the world for over a decade. In fact, the US is largely deploying the chip-and-signature standard, which still relies on an easily forged autograph. In contrast, many other countries use a chip-and-pin system that requires the input of a four digit Personal Identification Number (PIN), which is far more secure. With chip-and-signature, someone who steals your wallet can make a purchase with the confidence that few will ever compare their signature to the one on the back of the card. With the chip-and-pin system, the stolen credit card would be nearly useless for making in-person transactions.
There are no plans to deploy chip-and-pin cards in the United States at this time, and few card issuers even offer it for use overseas. Two cards worth checking out that do offer true chip-and-pin credit cards include the Barclaycard Arrival World MasterCard and the Barclaycard Arrival Plus World Elite MasterCard.
The new chip cards will eliminate credit card fraud. First, anyone who tells you that a system is totally secure and can never be hacked is clearly not an expert in computer security. In fact, there is a way for any criminal to defeat this system – simply by not using it. A thief could steal a chip card, and then simply perform a transaction online or over the phone, since the chip is never accessed in what's called "card not present" transactions. The EMV chip merely tries to prevent criminals from cloning the magnetic stripe of a stolen credit card, which is fairly easy. While EMV chip-cards can be cloned, this is a far more challenging task, and even when a criminal enterprise is capable of doing so, the cost of doing so will likely outweigh its gains.
For additional FAQ's on EMV cards, check out our EMV infographic!
*The content in this article is accurate at the publishing date, and may be subject to changes per the card issuer.