We are creatures of habit. For instance, many of us need our morning cup of coffee. Without fail, we stop at the coffee shop on the way to work, order our favorite caffeinated beverage (in my case a grande iced caramel macchiato), reach in to our wallets for our credit card and swipe away to buy our delicious morning java.
Well the powers that be won’t have it anymore. They are mandating that it’s time for our habit to change. Oh wait, don’t cry! I didn’t mean they’re changing our coffee habit. Our credit cards will soon be equipped with a special chip that will make obsolete that ubiquitous payment processing we’ve all become so familiar with, the credit card swipe. Now granted, this change is not extreme. We may divorce ourselves of the swipe without giving it a second thought. But why are credit cards switching to EMV technology? Below is a summary of what Maryalene LaPonsie at US News and World Report tells us we need to know about this coming change and most importantly how it will affect financial institutions.
This technology isn’t new. In fact, the U.S. is the last major country to transition its cards. The U.K. adopted this change back when The Da Vinci Code was in theaters and Shakira introduced us to her hips and the catchy song that goes along with them. (I won’t make you Google – it was 2006). This change is primarily about card security, and until recently, there wasn’t a pressing need to increase security in the U.S. since banks had been doing a good job of detecting fraud immediately. One of the problems however of being the last to adopt this standard is that criminals have increasingly turned to America to commit credit card fraud. For instance the 2013 and 2014 data breaches for Target and Home Depot are high profile examples of how some credit card fraud could have been avoided with EMV technology in place.
Counterfeiting cards with chips are a lot harder and more expensive. However one downside to better counterfeit protection is increased online fraud, which doesn’t benefit from EMV technology. Other countries who have already adopted the new technology have seen online fraud rates increase by nearly 100%. The same increase is expected in the U.S. as well. Although some are more optimistic that the increase will not be that dramatic due to maturing online fraud protection. Other countries who have adopted EMV technology have done away with the signing for credit card purchases replacing it with the dreaded PIN. (Ok, that may be overdramatic). But fear not Americans, the U.S. is sticking with your good old John Hancock. No PIN required.
However, there is one wee drawback to consumers. The transaction may take a little longer. Just keep reminding yourself “this technology is protecting me from fraud” to help soften that blow. And if you don’t have your new card yet, that’s ok, retailers are still accepting the swipe. Now for the good news for financial institutions (in addition to the increased fraud protection). Retailers will be held liable for fraudulent charges in some instances, shifting some of the burden away from financial institutions. Specifically if a retailer has not yet switched to accepting cards with chips, they will be liable for fraud in all cases where the consumer uses an EMV card. Pop the champagne bottle, give a holler and hug the person next to you.
Thanks to EMV technology, kicking the swiping habit gives us reason to celebrate.