A small change in your debit card is making a difference in protecting your money against fraud. By now you’ve likely received a new debit card from your bank with a small gold computer chip embedded on its face. You’ve repeatedly been reminded by bored store clerks to insert, not swipe. And, there’s probably more one store where you have to insert your card over and over before it finally takes.
Trust me, it’s all worth it. The new chipped cards, which debuted in late 2015, represent a huge advance in the battle against credit card fraud and identity theft. Here’s everything you need to know about this tiny wonder.
How does it protect me?
The magnetic strip on your old debit card contained all sorts of sensitive information, including your name, account number, card expiration date and security code. Every time you swiped that card, all that info was shared. That meant your data could fall into the wrong hands via a large-scale data breach at a major retailer, or simply by having your card stolen by criminals who could run it through a reader and harvest your financial information.
The new chip card eliminates that risky sharing. Instead of conveying all your information, they connect with the business’ point-of-sale computer terminal and generate a one-time-use transaction code. This makes it impossible for a thief to make a purchase without your card’s PIN. It also means there’s no sensitive information stored in the retailer’s database, where hackers could steal it.
The chip also makes it harder to counterfeit debit cards.
The new chipped cards don’t offer any extra protection against online fraud. They still have a card number printed on them, which is what you use to make Internet purchases. So, if your card number is stolen you could be vulnerable to fraudulent Internet purchases. Those would be covered by your bank in partnership with either Visa or MasterCard.
Why the Change?
When you incurred fraudulent charges on your magnetic strip debit card, Visa, Mastercard or your bank was obligated to reimburse your losses. As you can image, that cost hundreds of millions of dollars every year. The tipping point came in 2013 when hackers accessed Target’s customer database and grabbed 40 million card numbers and other personal information. The resulting fraud cost the banks millions. They sued Target, got a $39 million settlement, and promptly decided something had to be done.
The banks set an October 2015 deadline for retailers to adopt the chip cards, which have been in use in Europe since 1994, and are officially known as Europay/Master Card/Via or EMV cards.
Interestingly, this solution was not mandated by new laws or government regulation. It’s a great example of an industry working together to resolve a huge problem.
Who pays for fraud now?
Since October 2015, the least “EMV compliant” party is responsible for reimbursing your losses stemming from a particular transaction. If the retailer hasn’t upgraded to a chip-reading terminal, they will likely take the hit. If the business has a chip reader and your information is lost in a data breach, the bank, supported by Visa or MasterCard, will still have to pay-up. But with the new cards, Target-type hacks should be a thing of the past as your data is no longer stored after a transaction.
When you file a fraud claim, the bank will likely investigate to determine if the retailer is at fault. But that should be invisible to you. The bank will likely credit your account and then pursue any possible recourse from the business.
But I still have to swipe my card at several businesses.
True. While retailers are supposed to be chip compliant by now, many still haven’t made the transition. Gas stations have until 2017 to adopt the chip system. Debit cards will continue to have a magnetic strip for the next few years.
While the chip card already has dramatically reduced fraud, there is still some risk involved in making purchases with your debit card. So, remain vigilant. Check your accounts regularly for suspicious activity. Limit your online shopping to reputable, established sites. Cover the keypad when you type your debit PIN.
And don’t worry. The swipe/insert confusion at checkout won’t last much longer. We’ll all get the hang of it. Eventually.