Today is The Date Banks Set To Transition To New Chip Cards. Are We There Yet?

Today, October 1, 2015 is the date banks and card issuers set to transition to the new EMV chip cards. The transition was to reduce card fraud. EMV is the name of the technology jointly developed by Europay, MasterCard, and Visa. Was the transition completed? The American Banker reported:

"Most credit cards (about 70%) will have chips on them. But most of these cards will be chip-and-signature cards, not chip-and-PIN... Many small merchants won't be ready. Depending on which study you believe, somewhere between 20% and 30% of merchants have purchased and deployed the EMV-capable point-of-sale terminals and software they will need to handle EMV chip cards. Big-box stores like Target that have suffered data breaches have done this work. But most small stores and restaurants have not. New EMV equipment is expensive and sometimes difficult to implement, and many seem unaware of the dangers of not adapting."

So, the transition is incomplete. In Europe, the United Kingdom transitioned to chip-and-PIN in 2006, and saw store-related card fraud drop 70 percent. The PIN is a short number the cardholder enters at the terminal to authorize their purchase. Chip-and-signature refers to new chip cards when the cardholder signs at the terminal to authorize their purchase.

It' is troubling that many retailers in the USA haven't upgraded to the new terminals. The result: consumers will encounter a frustrating mix of stores with and without the new chip card terminals. Cardholders will have to insert their chip cards at stores with the new terminals, and swipe the swipe the magnetic stripe on the back of their chip cards at stores without the new terminals.

The new chip cards contain both a chip that encrypts and stores your sensitive payment information, plus the obsolete magnetic stripe on the back of the card, which fraudsters have used to clone cards. Some experts have criticized this approach, arguing that the less-secure magnetic stripes should have been eliminated. The counter argument:

"Duplicating the chip on a chip card is difficult if not impossible [for ciminals]. Most new cards are being issued with both a magnetic stripe and a chip and the new EMV terminals accept both the chip and the stripe. So theoretically [criminals] could duplicate just the magnetic stripe on the chip card, create a new magnetic stripe card and try to use that. However, if an EMV card is swiped on an EMV-compliant merchant terminal, the system will reject the transaction and force the consumer to insert the chip."

Time will tell which experts are correct. Some cite two statistics. First, 37 percent of total card fraud is from criminals using cloned cards in stores. Second, the bulk of card fraud is online:

"Online card fraud is expected to rise. So-called "card not present" fraud — where someone uses a card but does not physically present the card (this could be over the phone, over a fax machine, on a mobile device or a computer, but most people equate "card not present" with using a card on a website) — represents the bulk of card fraud in the U.S.: 45%, according to Aite Group. The analyst group expects online card fraud to more than double from $3.1 billion in 2015 to $6.4 billion in 2018."

To help consumers, the Consumer Financial Protection Bureau (CFPB) provides easy answers about the new chip cards. The CFPB is a great resource for consumers to learn about their rights and to get help. The CFPB enforces rules that financial institutions must follow when marketing financial products to consumers. For unresolved problems with credit/debit/prepaid cards, student loans, debt collection agencies, or other financial products, you can submit online a complaint to the CFPB for assistance.

Discover notified its credit card customers in July about the transition. Its notice provided helpful images of the new terminals, the new chip card, and how cardholders insert chip cards into the new terminals. As I wrote then, before traveling in Europe, Discover cardholders should set up a PIN number, since Europe requires chip-and-pin authorizations.

What are your opinions of the new chip cards? Of the partial transition? If you have experienced problems with a new chip card, please share below.