Why Amer­i­cans are get­ting new credit cards


A big change is hap­pen­ing in­side your wal­let.

U.S. banks, tired of spend­ing bil­lions each year to pay back fleeced con­sumers, are in the process of re­plac­ing tens of mil­lions of old mag­netic strip credit and debit cards with new cards that are equipped with com­puter chips that store ac­count data more se­curely.

By au­tumn, mil­lions of Amer­i­cans will have made the switch from the old mag­netic strip cards. That 50-year-old tech­nol­ogy, re­placed in most of world, lingers on the back of U.S. cards and is eas­ily copied by thieves, leav­ing peo­ple vul­ner­a­ble to fraud. Roughly half of all credit card fraud hap­pens in the U.S. even though the coun­try only makes up roughly 25 per­cent of all credit card trans­ac­tions, ac­cord­ing to a re­port by Bar­clays put out last week.

This en­tire switch is a mas­sive un­der­tak­ing. Roughly half of all U.S. credit and debit cards will be re­placed by the end of the year. Tens of thou­sands of in­di­vid­ual mer­chants need to up­grade their equip­ment to al­low for chip trans­ac­tions in­stead of “swipe-and-sign” ones. If the stores aren’t ready, they could be on the hook to cover the cost of fraud.

Here’s how the new cards work and how the switch could af­fect you at the check­out counter:

What’s Dif­fer­ent About

Th­ese Cards?

The big­gest dif­fer­ence be­tween your old card and your new one is the metal chip em­bed­ded on the front, which means your per­sonal data is much safer. The chip as­signs a unique code for ev­ery trans­ac­tion made on your card. Even if a thief ac­quired that code, it couldn’t be used to make an­other pur­chase.

Chip cards are also harder to du­pli­cate, although it’s not un­heard of. Over­all, the chip cards are more se­cure than mag­netic cards, which are vul­ner­a­ble be­cause once thieves get a copy of your credit card in­for­ma­tion, it can be quickly copied onto coun­ter­feit cards.

Chip cards have been com­mon in Europe for more than decade, and they’ve been stan­dard in other parts of the world for some time.

“The chip tech­nol­ogy is de­signed to pre­vent copy­ing of the card,” says Ellen Richey, vice chair­man of risk and public pol­icy at Visa.

In the U.S, chips-em­bed­ded cards have seen limited use un­til now. Laun­dro­mats, for in­stance, are one place chip-read­ing cards are be­ing used.

When Will I Get One?

At this point, the ma­jor­ity of mag­netic-stripe credit cards have been re­placed with chip cards. Banks are in the mid­dle of is­su­ing chip-based debit cards, with Bank of Amer­ica start­ing late last year and Chase and Citi start­ing this sum­mer. Re­gional and smaller banks are also rolling out th­ese cards to their cus­tomers, most of them start­ing later this year.

All chip cards also come with a mag­netic strip in case chip read­ers aren’t avail­able. How­ever, if a mer­chant does ac­cept chip cards for pur­chases, you should use that op­tion ev­ery

time be­cause it’s more se­cure.

Who’s Be­hind the Change?

The change is mostly com­ing from banks and pay­ment pro­cess­ing com­pa­nies — Visa, MasterCard and Amer­i­can Ex­press. Banks have wanted a more se­cure form of pay­ment be­cause they have gen­er­ally been on the hook for any fraud that hap­pens on their cards. Orig­i­nally the banks were re­ly­ing on their own soft­ware and data from the pay­ment net­works to catch fraud at the point of sale in the U.S., but it be­came clear some­thing more was needed, Richey said. Banks, par­tic­u­larly small banks, would of­ten pay out of pocket to cover any fraud that hap­pened on their cus­tomers’ pay­ment cards. The Amer­i­can Bankers As­so­ci­a­tion es­ti­mated that bank ac­count fraud cost the in­dus­try US$1.74 bil­lion in 2012, the most year the data is avail­able.

The pay­ment net­works have set a soft dead­line of Oct. 1, 2015 for the switchover to be made. Af­ter that date, most mer­chants who con­tinue to ac­cept mag­netic strip cards and have not up­graded their equip­ment could have to pay for any credit or debit card fraud that hap­pens in their stores. The “li­a­bil­ity shift,” as it’s called, presents a loom­ing dead­line for the banks, pay­ment com­pa­nies and mer­chants.

How Do I Use the Chip Card?

In­stead of swip­ing your card at the check­out, you’ll in­sert it into a ma­chine with a slot like those on ATMs. Your card will stay in the slot un­til the ma­chine tells you to re­move it. Un­like mag­netic strip cards, chip cards need to be left in the ma­chine for a few sec­onds to work.

Where and When Can I Use My

New Chip Card?

You can use it now. The prob­lem is that mer­chants need the right equip­ment to ac­cept the cards em­bed­ded with chips. Many stores have been slow to up­grade their equip­ment, de­spite the Oc­to­ber dead­line, be­cause it could be a sig­nif­i­cant ex­pense to re­place equip­ment and re­train em­ploy­ees. Pay­ment pro­cess­ing com­pa­nies like Visa, and bank who is­sue the cards, are push­ing stores to ac­cept the chips cards. Visa ex­pects roughly half of all mer­chants to have chip card read­ers by the end of the year.

Any­thing Else Chang­ing?

The new cards won’t work quite the same way they do in Europe, but they’re a step closer. The type of card be­ing rolled out in the U.S. will still need a sig­na­ture when you pay for some­thing. Even­tu­ally what will be used in the U.S. is what’s used in the rest of the world, known as “chip and PIN.” It would work sim­i­lar to your ATM card now. You would in­sert your card and en­ter a four-digit pass­word to ap­prove the trans­ac­tion. Se­cu­rity ex­perts be­lieve this is a very safe way to pay for things. Sign­ing for a credit card pur­chase pro­vide near-zero se­cu­rity since signatures vary and are rarely checked.

What Could Go Wrong In Oc­to­ber?

From a con­sumer per­spec­tive, not much. The big­gest is­sue is for mer­chants, who are way be­hind re­plac­ing their equip­ment in time.

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