Switch to chip: credit card security milestone

(getty images)

After a string of data breaches in the past few years, the switch to credit and debit cards with embedded microchips has finally picked up momentum and reached a key milestone Oct. 1.

"Everybody knows somebody who has had credit card fraud. So, this is a good thing. It's been in Europe for years and it's been in Canada. So, come on aboard America," said Gina Mangold, president of Holiday Market in Royal Oak.

This Oct. 1. deadline is more about a shift in liability, than a seismic change for consumers. Previously, financial institutions picked up the cost of bogus transactions. Starting now, that liability will shift to whichever institution hasn't upgraded to chip card security. It's a financial incentive for banks, card processors, and retailers to upgrade to the better security of the chip.

The technology better protects in-store payments from counterfeit card fraud. A small computer chip in the payment card generates a one-time use code for every transaction, making it virtually impossible to for thieves to create counterfeit cards

Many players are not ready for Oct. 1 deadline. New data from Visa shows only 314,000 merchants, just 5 percent of the estimated 6 million retailers with physical stores have the technology in place as the switch arrives. Consumers aren't ready to go either, according to Creditcards.com. More than six in 10 haven't received their chip-enabled cards yet.

When it comes to financial institutions, Industry leaders expect 63 percent of their credit and debit cards will contain chips by the end of this year, expanding to 98 percent by the end of 2017.

While that progress may seem slow, some say it takes time to make such a monumental shift. "There's an education curve to this process... we're going to crawl, before we walk, before we run," said John Mayleben, senior vice president of technology and product development for the Michigan Retailers Association.

What you need to know, a cheat sheet:

Here are the seven bullet points outlining what you need to know about the switch to the chip!

1) Consumers have never been responsible for fraudulent transactions, and that does not change.
2) All cards will still have the magnetic strips you have come to know, and all merchants will be able to process the magnetic strip, even if they've also upgraded to chip readers. You will be able to use your credit cards, wherever they are accepted.
3) The process at the checkout counter may change. If a store uses the chip readers, you will now "dip" the card into the reader. The machine takes a little longer to read the card and then spits it out.
4) Overseas, retailers use a Chip and PIN (Personal Identification Number) process to confirm each transaction. For now, the most financial institutions have decided to go with Chip and Sign. So, after you "dip" your card, you will still sign the receipt.
5) Because the cards still have those magnetic strips, they are still as risk of being copied. You should continue (or start) your regular credit card security protocols to make sure you notice any bogus transactions. Be sure to monitor your charges online or read your statements very carefully each month.
6) Nothing changes for online shopping. You still have to enter your information manually, and again, take all the same precautions you've been taken when shopping online.
7) If you're going to travel abroad, contact your credit card company to see which procedure is in place at your destination. In some places, you may have trouble finishing a transaction of you don't have a PIN to verify your identity.

This change will take time

The change to chip technology is going to awhile. Ironically, it may be superseded by other forms of payment that are also more secure, for example using your smartphone to make purchases.

"Back in the 80s to go from no mag stripe to a mag stripe was a five year process," said Mayleben.

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