Microchips Set to Take Over US Credit Cards This Year

American shoppers, adept at swiping the stripe, soon will learn to dip the chip in malls and strip centers across the land.

We’re talking about credit cards, specifically high-tech ones with microchips inside to make plastic money more secure. Chip cards are everywhere overseas and finally emerging here in response to massive credit-card-data breaches such as the one at Target in 2013.

Expect to find chip cards in your wallet by year-end, as card issuers roll them out, if one’s not there already. Chip cards have a small gold or silver rectangle on the front of the card just above the first four digits of the card’s number. It’s not the hologram of a dove found on many stripe cards.

It will help if someone shows you how to use them. Shoppers shouldn’t slide a chip card through the machine at checkout lines. They should insert, or dip, the chip card into a slot — and let it sit.

“When you put it in there, it kind of clicks. You can feel it,” said Bobbie Kuhns, who used her chip card recently at a Wal-Mart grocery store.

More of us would be dipping chip cards already if this seemingly simple change weren’t so disruptive, and it certainly creates potential pitfalls such as leaving your card behind.

Experts, however, say retraining consumers will be worth it. Chip cards are nearly impossible to counterfeit even with stolen account information, in contrast to normal credit cards.

“America got a big wake-up call with Target, and everybody in the industry is very keen on fixing this problem,” said Carl Bradbury, director of consumer cards at Commerce Bank.

And if a chip card is lost or stolen, a second security measure can render it useless. Few American-issued cards, however, are set to deploy this second safety step, and that has some security advocates howling.

“We’re just not taking advantage of the technology given to us,” said John MacAllister, a semi-retired consultant to the payments industry.

Big-store chains, notably Wal-Mart, are leading the retail industry toward chip cards.

Crooks have pretty much figured out the old credit cards that just swipe. And they’re creating financial mayhem.

A report from the Federal Reserve Bank of Kansas City last fall put the total for credit- and debit-card fraud at $3.8 billion.

Thieves have lots of ways to steal account information, and it’s relatively easy to put the coded information onto the stripe of a blank card or re-code an existing card with the new information.

Stripe cards are vulnerable because every time you swipe one it gives up key information crooks need to do their dirty work. Hackers have found many ways to intercept or steal this information, collecting data on millions of cards and card holders.

For example, Kansas City-area police are seeking help identifying two men suspected of putting a card reader inside a bank’s ATM, hoping to copy the stripe’s information every time customers withdrew cash.

Microchips make credit cards virtually impossible to counterfeit.

Merchants will want chip readers come October. That’s when a new rule imposed by credit-card companies Visa and MasterCard hits. It has to do with who’s liable when thieves get away with fraudulent transactions using a counterfeit card.

Visa has declared that banks that fail to get chips into customers’ cards by Oct. 1 will be on the hook for fraudulent transactions that involve using a counterfeit stripe card. Similarly, merchants who let customers swipe the stripe of a chip card after Oct. 1 will be stuck for those transactions that turn out to be counterfeit frauds.

Currently, banks generally are on the hook for fraud when counterfeit cards are presented to merchants and merchants generally are on the hook for online credit-card fraud, which means no card is physically presented to the merchant.

Still, not all consumers will have chip cards in hand by the October deadline.

UMB Bank, for example, has no chips to offer new card customers today and expects to need all of 2015 to complete its switch.

“Everybody’s doing it, and the issuers have built queue lines,” said Mike Hagedorn, President and CEO of UMB Bank.

Regional and smaller bank card issuers are behind the biggest banks.

The chip is only half the security. And many say it’s not enough.

Overseas, for example, consumers who dip the chip typically enter a four-digit number to confirm the charge. This PIN, or personal identification number, adds a second layer of security.

A lost or stolen card becomes useless because the finder or thief won’t have the PIN to enter.

Given a choice, consumers “absolutely” should look for both a chip and PIN with their credit cards, said Odysseas Papadimitriou, founder of CardHub.com, which compares features of cards.

“And most importantly, you want the merchants to start accepting them,” he said. “If you have a chip card and you’re swiping it everywhere, it doesn’t help at all.”

This article appeared in print in the February 11th, 2015 edition of Hamodia.