If you've traveled overseas recently, you may have had a moment
when your magnetic stripe credit card didn't work. In places where
most credit cards are identified by microchip -- Europe, Asia,
Canada, Mexico, Brazil, to name a few -- relying on standard
American magnetic-stripe cards can be inconvenient. It can
also make you more vulnerable to fraud.
Instead of swiping a chip card, you insert it into a payment
terminal. Identifying information is encrypted on an embedded
microchip, which is more difficult to counterfeit than a magnetic
More than 80 countries around the world use chip technology. Yet
less than 1 percent of credit cards issued in the U.S. have chips.
That's about to change.
Europe began the migration to chip cards soon after 2002, when
EuroPay, MasterCard and Visa collaborated on EMV, the leading
global standard for chip technology. While magnetic stripes offer
the same data every time you make a purchase, chip cards encrypt
different data for each transaction, making them harder to clone or
Boosting security at home and abroad
Convenience while traveling seems to be the primary motivation for
U.S. consumers to request chip cards now, but frequent overseas
travelers also appreciate the added security, says Sisy Vicente,
general manager of Chase Card Services. "Having a microchip makes
it a more secure transaction for our card members as they go abroad
because it makes it more difficult to counterfeit their cards,"
Several years ago, this reporter had a credit card cloned while
traveling in Bali. The card never left my possession, so I had no
idea my account was vulnerable. Within a week, someone had already
traveled to Thailand and charged more than $1,300 worth of jewelry
to my account using a counterfeit card bearing a different name.
Luckily, Citi's fraud department caught and resolved the problem
That kind of cloning would have been impossible with a chip
card. "If a microchip is used instead of a magnetic stripe at point
of sale, the data copied becomes useless for creating a cloned
card," says Guy Berg, now senior managing consultant for
MasterCard, but speaking as an EMV expert who has helped many
countries migrate to chip cards. "If someone were to steal data
from a single transaction and make a card from it, that card would
be identified as data used before and not authorized." The
counterfeiter would be caught in the act.
Increasingly, card counterfeiting is finding its way to the
U.S., especially now that both Mexico and Canada have adopted EMV.
Fraudsters look for the low-hanging fruit and with tougher
standards elsewhere, they're concentrating their efforts in the
"Given that the United States is one of the last economies, and
definitely the largest, to migrate to EMV, it's attracting a lot of
focus from organized crime elements," says Berg. "This is becoming
one of the easiest places to commit counterfeit fraud, and the
problem is expected to grow at a faster pace."
Chips are coming
Concern about the upswing in credit card fraud is one reason
U.S.-based card issuers, financial institutions and retailers have
set a deadline of October 2015 to put an EMV payment system in
place. That's when liability for counterfeit fraud shifts from the
issuers to merchants and their acquirers if their equipment does
not support EMV.
Industry experts say we can expect a large-scale rollout of chip
cards in the U.S. later this year and into 2014. By October 2015,
major retailers will likely have terminals in place to read chip
cards. Without terminals to support EMV, retailers rely on the mag
stripe -- even when the card contains a chip.
Don't expect to use chip cards at the gas pump until at least
2017, however. "Installing that equipment requires specially
certified personnel working in a highly combustible environment,"
Most issuers are doing a business case analysis to determine
when it makes sense to begin issuing EMV cards.
and a few credit unions began introducing chip cards in 2012.
Currently, there are
at least 50 EMV cards available to U.S.
, according to a list compiled by the frequent traveler forum
Bank of America
offers chip-and-signature technology for a dozen cards, including
its Travel Rewards, AAA Member Rewards, Virgin Atlantic and Asiana
Airlines cards. Citi has EMV chips in some AAdvantage and Thank You
Premier cards. Chase offers them in J.P. Morgan cards and cards
co-branded with Hyatt, Marriott, Ritz-Carlton and British Airways.
American Express Platinum and Centurion cards also come with
Ask and you may (or may not) receive
If you're planning a trip overseas, you should do what a Salt Lake
City retired auditor, John Levanger, did to prepare for his trip to
Europe in August: Try to trade in at least one of your mag-stripe
credit cards for an EMV version. As Levanger will attest, however,
that may not be possible. He and his wife hold six credit cards
between them -- issued by American Express, Citi, Chase and a
credit union -- but when he contacted American Express and the
credit union, he was told EMV was not yet available for those
Adding an EMV chip to a card is complicated, so issuers are
doing it one category at a time. So far they tend to be
concentrating their efforts on cards aimed at big spenders and
corporations, or on those that are co-branded with airlines and
international hotel chains.
Like most issuers, Chase began with cards showing the most
international purchases, according to Vicente. "We knew those
customers would value this new innovation the most," says Vicente.
"The response has been fantastic, especially for folks who no
longer have to line up to pay cash to get their tickets at the
airport or the rails system. There are a lot of kiosks in those
Why are we getting chip-and-signature?
While chip-and-PIN cards are prevalent in Europe and Asia, the U.S.
market offers a PIN option on only a dozen cards, mainly issued by
credit unions. PenFed offers four credit cards with both signature
and PIN capability, and a $20 donation will get you into the credit
union. PenFed declined to speak on record. Wells Fargo has a
high-end PIN option as well, but also turned down a request for an
Representatives of Chase and American Express say
chip-and-signature is all they offer to U.S. cardholders and it's
not an issue. However, overseas travelers occasionally report
problems using chip-and-signature cards at unmanned kiosks.
Is signature-only enough to prevent card fraud, especially
traveling outside the U.S.? Not entirely, says Randy Vanderhoof,
executive director of the
Smart Card Alliance
. "Chip-and-signature cards solve the problem of counterfeit card
fraud, but they don't solve for lost and stolen card fraud," says
Vanderhoof. "Having a PIN would add an additional level of
The standard argument to that has been that financial
institutions issue millions of credit cards that don't support
PINs, so there's a significant learning curve for consumers and
merchants to change how they use their cards. Berg points out that
Americans carry more credit cards than is typical in other
countries -- four or five on average. To memorize that many PINs is
a point of resistance, and the first time a customer enters one
wrong and a card is rejected, that registers as a card that didn't
MasterCard and Visa have taken slightly different stands on the
PIN vs. signature issue. MasterCard publically announced to issuers
that it will support either signature or PIN. Visa advised its
issuers that it recommends chip-and-signature, but will support
financial institutions that want to issue a PIN. "It's not that the
entire industry has decided on one method," Vanderhoof says. "It's
still being left up to financial institutions whether they want to
take that risk associated with issues of consumer learning and
"Everyone agrees -- merchants, consumers and financial
institutions -- that in moving to the more secure platform of EMV,
we don't want to create headaches that cause consumers not to want
to use this," Vanderhoof says.
Will we get a PIN option?
Berg predicts a PIN option will be added to chip cards eventually,
based on his experience helping other countries -- including Japan,
Brazil and Taiwan -- make the transition to EMV. "Many issuers may
start off not supporting PIN in their first round, but then in a
couple years, once they have all the functionality to support
offline PIN for the chip, we may see more cards going to PIN
support," Berg says. "Chip-and-signature is easier to implement in
the credit card environment."
Employing the chip, even without the PIN, will alleviate what he
sees as the real problem: counterfeiting. "PIN does add an
additional element of security, but PIN is not a panacea for
security," Berg says. ATM fraud is on the rise and ATM cards have
always used PINs, he points out. Seven people were arrested in the
U.S. in May after criminals stole $45 million in a matter of hours
hacking into a database of prepaid debit cards
and draining cash machines around the globe. "There are a lot of
instances where organized crime elements have been able to capture
the PIN and the information, clone cards and hit ATM networks,"
Altering the U.S. payment system to acknowledge microchips is no
small task. "We have one of the most complicated payment ecosystems
in the world," says Vanderhoof. Other countries made the transition
to EMV at a fraction of the time and cost, he points out. "Canada,
for example, one of most recent to adopt EMV, has five primary
financial institutions. They only needed those five to agree and
the entire card market could change."
By contrast, the U.S. has more than 10,000 card issuers, a
million merchants and 8 million POS devices that accept cards,
Vanderhoof notes. All have to change. "Businesses only make
investments on that scale if there's a demonstrated return," says
Vanderhoof. "They had to see that fraud was bad and getting worse.
They're making the investment as insurance on future losses."
At this point, it's difficult to predict how quickly the
transition to PIN will happen -- if it happens at all. But it's
safe to say we'll soon be inserting, instead of swiping.
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