You may have noticed some changes in credit cards and credit card readers recently.
The little squares that have appeared on the cards. The slot at the bottom of card readers where people put their cards.
But what exactly are these changes and why are they necessary?
The changes are a switch to EMV technology and the goal is to protect customers from fraud and theft.
The U.S. only accounts for about a quarter of all credit card transactions around the world, but almost half of all credit card fraud happens here. One of the things other countries have that the U.S. doesn’t: EMV chips.
Companies are looking for ways to keep consumers safe from fraud and EMV chips seem to be the answer.
What’s EMV?
It stands for Europay, Mastercard, and Visa, the three companies that are the driving force behind card chip technology.
EMV chips are tiny computer chips on credit cards. You’ve seen them. They’re small gold or silver squares with lines running through them. Card readers interact with those computer chips, sending data back and forth.
The chips are safer than the standard magnetic strips on cards, as they are always changing.
Not only are the chips constantly changing, they aren’t enough to complete a purchase on their own. Customers are required to either enter a PIN or sign a receipt to verify the transaction.
So how does all this work?
It’s quite simple.
Customers insert their cards into the reader and the chip starts interacting with it. People have started calling it the “dip” and refer to the whole process as “the chip-and-dip” which, while it makes me hungry, is a name I absolutely love.
The biggest difference between EMV chips and magnetic strips is that the card is left in the terminal for the entire transaction. This allows the chip to send all the information necessary to the vendor and receive information back.
When the purchase is complete, the customer pulls out the card and either enters a PIN or signs a receipt.
What it means for retail
The switch to EMV chip readers has been a slow one. In a survey conducted in September 2015, 42% of U.S. retailers had no plans to make the switch to EMV technology by October or at least had not heard about any plans to do so.
It’s a tough choice to make, and a fairly important one. Luckily for you, I’ve made a list of the pros and cons of switching to EMV chip readers.
Advantages
- Safer.
EMV chips generate a new code every time they’re used. This makes it extremely difficult for thieves to copy the information and use it.
It’s like belonging to a secret club where the password changes every time you go. Even if someone overheard what password you used once, it wouldn’t get them in.
The chips aren’t the only security feature. Each chip reader requires either a signature or a PIN from the customer. Every store can choose which they want customers to provide, though the signature seems to be more popular in the U.S. Others recommend the PIN, as it’s easier for people to forge a signature than to find out someone’s PIN.
- Flexible.
EMV chips aren’t trying to replace the current cards we have. They’re meant to augment what’s already there. Cards with EMV chips still have magnetic strips that can be swiped.
This allows cards with EMV chips to become much more flexible, at least metaphorically. If a store has an EMV chip reader, the customer can use it for a safer transaction. If not, she can swipe it like she would if the chip wasn’t there.
- Liability.
As of October 1, 2015, any store that doesn’t provide EMV chip readers is held liable for theft involving a card with an EMV chip on it.
I know, it sounds complicated.
Essentially, if a customer has a card with an EMV chip but the store doesn’t have the technology to match it, the store is held responsible if something happens to that card’s information.
This incentive is really meant to push stores toward using the new technology. Very few people are willing to gamble when it comes to liability.
- Past success
In the ten years since the U.K. switched to EMV technology, counterfeit fraud has gone down 63%. In fact, the U.S. is kind of behind on this trend, as most European countries have made the switch to EMV chips.
It makes things a lot easier if countries around the world have the same technology in place.
- Accepts mobile payments.
Most of the EMV chip readers are essentially a 3-in-1 deal.
They have a slot to swipe a magnetic strip, a terminal to read EMV chips, and are able to read near field communication (NFC) payments, like Apple Pay.
- Financial incentives.
Companies want retailers to use EMV chip readers.
If the threat of liability isn’t enough to make them change over, some corporations are offering to waive a retailer’s certain audit if the store meets specific requirements (generally, a certain percentage of customers paying with EMV chips).
Disadvantages
- Longer transaction time.
One of the things consumers have noticed about EMV chips is a slightly longer checkout time.
Unlike cards with magnetic strips, EMV chips have to be inserted into the reader after all the items have been scanned. Not only that, but more information being sent between the card and the reader.
It only takes seconds longer than usual, but those seconds can add up.
Let’s do a little math. Before you freak out and run away (like I’m always tempted to do at the idea of doing math), I promise I’ll do all the calculations for you.
Let’s say there are five customers in a checkout line. All of them have cards with EMV chips. The first customer takes 20 seconds longer at the cashier using his EMV chip than he would have just swiping his card. The second customer takes 15 seconds longer. The third takes 20 seconds more, the fourth 25 seconds, and the fifth 15 seconds.
Now, none of those seem like a significant amount of time. But by the time the fifth customer gets to the front of the line, she’s been waiting a minute and 20 seconds more than she would have if the customers in front of her simply swiped their cards.
It might not seem like much time, but when you’re just standing around waiting, it can feel like forever.
And imagine busier shopping days around the holidays when lines are even longer.
Or a typical Tuesday evening at Costco.
- Forgotten cards.
Because customers have to leave their cards in the reader during the entire transaction, there’s a higher risk of them leaving the card behind by accident.
If the person takes the card to a store where a signature is needed instead of a PIN, he can forge a signature and make purchases with the stolen card.
It’s not the most elegant way to to steal someone’s information, perhaps, but it’s an opportunity that some people will take advantage of, given the chance.
- Expensive and slow transition.
Converting to EMV chip readers is not an easy transition, unfortunately. It requires replacing equipment, some of which may be as old as 30 years old. That’s not a cheap endeavor.
Some companies are selling attachments for smartphones and tablets for as cheap as $30. Card reader consoles can cost anywhere from $150 and $300. A lot of stores are hesitant to spend money on multiple card readers when the old ones work just as well with the magnetic strips.
The technology is slow to catch on. Some of the biggest names in retail, like CVS and Kroger, haven’t made the switch yet. Despite nearly all carriers including the chips on their new cards, by experts predict that by the end of 2015, less than half of card reading terminals will be equipped for EMV chips.
- Relearn check-out procedures.
EMV chips are used differently than magnetic stripes. Customers have to learn an entirely new way to pay for items. They have to leave their cards in the reader for the duration of the transaction and then remember to take it out when they leave.
The EMV chips also take a longer amount of time to complete the purchase. And each store must decide to ask for a signature or a PIN, so customers might be confused about which to use if it isn’t clear.
- International incompatibilities.
One problem consumers are running into is trouble with their EMV chips overseas. Most European countries require a PIN rather than signatures. Unfortunately, most EMV chips in the U.S. are geared toward signatures and not even given a PIN.
So when consumers travel internationally, they can’t use the chip and have to find a place where they can swipe their card instead.
Have you made the switch to an EMV chip reader? Why or why not?
