Major Credit Card Changes are Coming, October 2015
Major changes are coming to a store—and wallet—near you this fall.
It is something that you do several times a week and probably don’t even think about it. You go to the store and upon paying for your goods, swipe your credit card and then sign at the terminal. But soon, this will be a thing of the past.
Starting in October 2015, a big change-over is coming to stores nationwide—and to your very own wallet. Swipe-and-sign credit card terminals will be replaced with new terminals, chip-and-PIN, which you will insert your credit card into for a chip to provide information and can enter a PIN for verification—as opposed to swiping the magnetic strip and signing. You are probably already familiar with this process if you have ever used your bank card at the ATM: insert your card and enter your PIN number to complete the transaction.
So why are credit card companies making this widespread switch?
There are a couple of benefits to switching to this new chip-and-PIN system, known as EMV:
Operates Offline—while being able to access information from both credit card and bank to authorize an expedient transaction is not a problem in the U.S. as it has been in other parts of the world, it does offer a way to process the transaction independent of this type of communication.
A transaction-unique digital signature in the chip proves its authenticity in an offline location and averts criminals from using fraudulent cards
Reduce Fraud—many markets around the world have already switched to this system in order to reduce fraud, which has actually had the effect of rising fraud here in the U.S. Whether being used as EMV Contact or Contactless, the payment chip cards hold an embedded microchip, which is a type of small computer that provides robust security features and other capabilities not possible with magnetic stripe cards.
You may have noticed a metallic square on the front of some of your current credit cards; this is used for an EMV contact card is known as the card’s contact plate. A microchip is embedded in a small cavity directly behind the contact plate, protected by a thin resin capsule. When inserted into a card acceptance device, such as a terminal, the contact plate allows the chip to connect to a reader. This connection enables the chip to get power from and exchange data with the terminal.
Contactless EMV works by holding a contactless, chip-enabled payment device, such as a credit card or smartphone, within proximity of a contactless-capable reader. The reader activates the chip embedded in the card and allows exchange of data via radio frequency without the payment device ever leaving the customer’s possession.
What is important about the October 2015 deadline?
For the consumer, there is not really anything important about the October 2015 deadline, except for the fact that the process will change and you will probably receive new credit cards in the mail by that time. At least initially, consumers will still be able to sign for purchases if your bank has not chosen to issue cards that require PINs because PINs will not be required as of October 2015.
The Liability Shift
Part of the October 2015 deadline in our roadmap is what’s known as the ‘liability shift.’ Whenever card fraud happens, we need to determine who is liable for the costs. When the liability shift happens, what will change is that if there is an incidence of card fraud, whichever party has the lesser technology will bear the liability.
If a merchant is still using the old system, they can still run a transaction, using a swipe and a signature; however, they will be liable for any fraudulent transactions if the customer has received and is using a chip card. And vice versa—if the merchant has a new terminal, but the bank hasn’t issued a chip-and-PIN card to the customer, the bank would be liable.
The main purpose of a liability shift is not merely to shift liability around the market. Its purpose is to provide incentive to create coordination in the market, so you have issuers and merchants investing in the migration at the same time. In theory, fraud is not necessarily shifting around within the system, but being driven out of the system.
Some merchants already have the new terminals in place, so be on the lookout over the next few months for these subtle, yet major, changes in the way in which you can pay for goods and services.