If you’ve received a new credit or debit card recently, you may have noticed a small metallic square on the face of the card and wondered what it was all about. If your card contains the metallic square, it is an EMV card or “chip card” and the square is a contact plate that enables the card to communicate with a new generation of card readers. EMV cards contain an embedded microchip that communicates with the card terminal during the transaction and delivers a unique code each time the card is used. Because it is a two-way communication between the card and terminal, the card is left inside the terminal during the transaction. The two-way communication and one-time transaction specific codes virtually eliminate the risk that the card could be counterfeited and used fraudulently in the manner that is prevalent with conventional magnetic strip cards.
The technology for EMV cards was originally developed by Europay, Mastercard and Visa (hence the name EMV) in the mid-1990s, but the trademark and technology is now owned by EMVCo, which is comprised of equity holders American Express, JCB, Discover, MasterCard, UnionPay and Visa. EMV cards have been widely used throughout the world for years and have successfully reduced the level of counterfeit fraudulent transactions in the countries where they are used. America has lagged behind other developed nations in implementing EMV cards and as a result has experienced a higher level of counterfeit credit card fraud. The conversion to EMV cards in the United States is expected to reduce the level of counterfeit transactions like it has in other countries.
Another benefit of EMV conversion in the United States is that travel will be easier, both for Americans travelling internationally and for foreigners visiting the United States. Travelers have often been frustrated by the inability to use their cards in other countries, because of the difference in the card reader styles, and it has left many a traveler stranded trying to figure out how to pay for rides at bus terminal and train station kiosks.
EMV cards are not without limitations, however. While EMV cards provide an added level of protection from duplicating a card or creating a card from stolen information, they don’t thwart the ability of a thief to use a card that is physically lost or stolen. The cards also don’t provide any additional security for transactions where the card isn’t physically presented for payment, such as online or telephone transactions. Even with an EMV card, you will want to be diligent in safeguarding your card and making sure you only conduct transactions with reputable retailers.
The conversion to EMV cards will entail financial institutions reissuing all existing debit and credit cards and merchants upgrading or replacing all card reader terminals and ATMs. As you can imagine, this transition will take some time and there will be considerable overlap between the newer EMV cards and the older magnetic strip cards. Most cards issued over the next several years will likely support both the magnetic strip and EMV methods of payment. Likewise, most upgraded EMV card reader terminals will also be capable of accepting the older magnetic strip cards until they are phased out.
You will likely start to notice a big push to upgrade to EMV because, effective October 2015, the liability rules for counterfeit card transactions will change. In the past, the financial institutions have been held almost exclusively liable for fraudulent transactions. Effective October 2015, the merchant may share in the liability if the merchant has not upgraded to an EMV terminal and a counterfeit card is used at the merchant’s magnetic strip terminal. Businesses should consult with their merchant services provider now to explore options for upgrading to EMV compatible card terminals to avoid potential for additional liability.
As with any transition, there may be some minor inconveniences along the way as the conversion is completed, but hopefully it is limited to waiting a few extra seconds in line at the checkout while the person in front of you stumbles with figuring out how the new card reader works. QCBN
Country Bank, Member FDIC, is a full service community bank serving Yavapai County with offices in Prescott, Prescott Valley and Cottonwood. Ryan Glennan, NMLS # 478327, is a vice president of Country Bank specializing in commercial lending and residential construction loans. Please visit www.countrybankaz.com or call 928-443-9595 for more information.
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