What chip credit cards mean for you and retailers

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It's the biggest shift in credit card security since the 1980s.

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 will reach 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.

While she welcomes the switch to chip cards, it's a big change for her store, and many other smaller businesses.

"I got to get new cables. I gotta get new servers -- my servers do not support the new systems," she told Ruth to the Rescue.

Mangold is working to get chip readers in her story as soon as possible, but it won't happen by Oct. 1. The Michigan Retailers Association says Oct. 1 is a key date, but not earth-shattering for most of you.

"What's happening on October 1st is really behind the scenes change for the retail community," said John Mayleben, senior vice president of technology and product development for the Michigan Retailers Association.

What changes Oct. 1?

Currently, financial institutions pick up the cost of bogus transactions. Starting Oct 1., 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.

"They can't create a counterfeit card which is two-thirds of the fraud we see in the system," said Stephanie Ericksen, of Visa.

The new technology could also start to chip away at the market for data stolen during those breaches we've heard so much about. Because the chip card creates a one-time code for each purchase, any data stolen during a breach has a much shorter shelf-life. The hackers responsible for big breaches often hold onto that personal information for weeks or months, so they don't alert the business that the data has been stolen. Later, they are able to sell the data on the black market.

"If a data breach were to occur with a chip transaction the data that is stolen becomes obsolete much faster," said Mayleben.

What's not changing

Although many of you may have cards with the microchips, you'll also notice your cards still have the magnetic stripes we've been using for so many years.

That will enable us to use any card at any store. However, it also means the information on the mag stripe can still be stolen or counterfeited, so you should still maintain your vigilance and monitor your cards for any suspicious purchases.

Some businesses won't make the switch right away. They're not upgrading to the chip readers by Oct. 1.

"Every retailer is making those decisions based on the types of things they sell, who their customers are, how well they know their customers," said Mayleben.

He points out that smaller retailers are less likely to be targets for fraud, and their potential losses might be small. In that equation, the switch to chip technology may be too expensive to make right now. Other retailers don't want to slow things down at the checkout counter. While using the chip cards is still a speedy transaction, it's a little bit slower than swiping the magnetic strips.

"If you're going to add three or four or five or ten seconds to every transaction and you're a quick serve restaurant with a four dollar average ticket, you're risk of having a fraudulent transaction is pretty small," said Mayleben.

You're most likely to see chip readers at high-end stores, jewelers, and larger retailers who might be targeted in a data breach.

What to expect

The most visible change you'll see is at the checkout counter. Instead of a quick swipe, you insert your card into the reader, leave it for a few seconds and when it pops out you're done. Again, all cards will still have magnetic strips, so you'll be able to use your cards at any retailer, even if the store doesn't have a chip reader.

In Europe and Canada, they use what's called a Chip and PIN system. The cards have chips and the customers must enter a PIN (Personal Identification Number) for each purchase. So far, American banks have opted for a Chip and Sign system. That will not stop fraudulent purchases if someone steals your card, so be sure to cancel any lost or stolen cards, just have you do now.

Industry insiders expect there may be yet another shift to Chip and PIN in the future. Although, other more secure forms of payment might also come along and make cards obsolete. Either way, the change in security is likely to be more of an evolution, rather than a revolution.

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

While retailers scramble to have the chip reachers, banks and other financial institutions are working to send out more chip cards. 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.

Meanwhile, Gina Mangold is working to update her technology at the Holiday Market in Royal Oak.

"Why I'm here today is because of the loyalty of my customers. If that's going to make them feel more secure and safe, absolutely," she said.

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