Credit card fraud is a huge problem in the U.S. Javelin Strategy & Research found that, in 2016, over 15.4 million customers had their data compromised and lost over $16 billion as a result. To combat these staggering figures, businesses are installing credit processing machines with a chip reader to make transactions safer.
You’ve likely had to use one when checking out in-store at a favorite retailer. Unlike a few years back when you could simply swipe your card, now you insert it into a machine that reads a chip and requires your pin number to process. While the multi-step process might seem time consuming and redundant, there are many perks to the technology that makes it worthwhile.
Here, we’ll discuss what you need to know about chip reader technology. We’ll include a description of what it is, how the EMV chip reader works, and what you need to know to get the most out of the upgrade. We’ll also highlight three things to keep in mind now that the U.S. has completely made the switch to EMV technology.
What is an EMV Card Chip Reader?
To understand how chip readers work, first, we need to talk about the basics. For starters, EMV stands for “Europay, MasterCard, and Visa,” who were the original organizations who set out to upgrade the standardized protocols worldwide for chipped cards. Part of their mission was developing both the integrated circuit technology within the cards, and the other piece was creating the hardware that could accept them.
The EU is ahead of the curve when compared to the U.S. They implemented the technology in 2005, and chip readers are the status quo overseas. Canada came on board in 2012, and the U.S. followed with regulatory requirements in 2015.
As of October 1st, of 2017, U.S. retailers, merchants, ATM’s, and gas stations should be completely compliant with the new chip reader requirements.
How do EMV Readers Work?
According to the FTC, the high-tech chip cards create a unique transaction code every time you use them in store. This code is what allows your transaction to be approved, and is only good for a one-time use. This process makes it difficult for criminals to steal your information at the point of sale, and nearly impossible to counterfeit a credit card.
The chip readers that are most effective in protecting against fraud will not only require the card to be inserted into the machine but will also need a pin number to use. This four to eight-digit code is unique to your card. Take care to never share your pin number with anyone you don’t trust to have access to your financial information.
How Does a Smart Chip Reader Protect Against Theft?
When a thief obtains your financial information during a transaction, it’s known as credit card skimming. They can do this one of several ways.
According to the Identity Theft Resource Center, culprits can use both old-school technology like a photocopier and new school methods like small electronic devices to capture and steal your data.
At places like gas pumps or ATMs in the U.S., it’s possible that a thief has installed an electronic device that will read your magnetic stripe and capture your pin number when you swipe your card for a purchase.
As these are outdoor terminals that aren’t often monitored by employees, it’s possible for criminals to gain access and install these small gadgets without anyone realizing it’s happened. They then copy your information when you swipe your card to make a purchase or withdrawal.
At restaurants and bars, or in department stores when an employee takes your credit card to another location to process it, you’re also at risk of them copying the information. They could do this with an electronic device, or it could be as simple as taking a photo of the front and back of your card with their camera phone to later use your information for a transaction online.
Remember, any time your credit card is out of sight your data could be compromised, so safeguard yourself against these situations whenever possible.
Thankfully, the introduction of smart chip readers at point of sale locations will help to eliminate some of these potential occurrences of identity theft. The incidences of chip card reader theft are very low, as the technology protects your data in the transaction in two ways.
It offers protection first by creating a unique transaction code every time your card is used making your information nearly impossible to duplicate. As an added layer of security, the chip within your card is both difficult and very expensive to counterfeit. This makes it far less likely that an everyday thief will use the time or resources to exploit your information.
Should All Retailers Use a Chip Reader?
While retailers in the EU and Canada made the switch to the upgraded technology several years ago, the U.S. has only recently followed suit. Thanks in part to the liability shift in October 2015, which moved the burden from the banks and credit card companies to the businesses processing the transaction.
This means that as of October 1st of 2015 any business with a point of sale terminal that isn’t using an EMV payment terminal is responsible for any fraud that occurs at their location if the person pays with an EMV equipped card. This rule applies to Visa, MasterCard, American Express, and Discover cards.
Beyond point of sale purchases in stores, there are some dates to note for other types of transactions as well.
The same shift happened for ATM transactions for MasterCard on October 1st of 2016, and as of October 1st of 2017 gas stations and the rest of the ATMs (Visa and AmEx) came on board.
Today anywhere that you pay with a credit or debit card during an in-person transaction should be using a chip reader to protect both your information and themselves from large liabilities in cases of identity theft.
How Do Businesses Upgrade?
If you own a business and still haven’t upgraded your system, it’s time to make that happen.
The cost of upgrading credit card processing equipment will vary depending on the size of your business and the number of transactions you do monthly and can range from $30 to $1,000 for a chip reader.
Talk with your current credit processing company, and shop around for terminals from providers like Square or PayPal who offer USB chip card readers that might be ideal if you’re a small business looking to make the switch.
Be sure that you choose hardware that not only uses the EMV chip technology, but that also requires a pin number to process. This added step offers additional protection and keeps customer data secure and nearly impenetrable.
Three Things Consumers and Businesses Should Remember
The switch from magnetic stripe credit card processing to the upgraded chip card method is guaranteed to help keep financial information more secure. However, there are a few things to keep in mind now that the change has been made.
Online and Over the Phone Transactions Don’t Use Chip Reader Technology
Online shopping is bigger than ever, and with retailers like Amazon posting record-breaking numbers in 2017, it’s only poised to continue to grow. Unfortunately, EMV chips won’t offer any added protection when you shop online or give your credit card information for transactions over the phone.
As online fraud is on the rise, and up over 120 percent in some areas over the last decade, it’s crucial that consumers only shop from trusted retailers and websites and closely guard their financial information.
The U.S. isn’t the First Country to Make the Switch to EMV Technology
While at times it’s best to be first, in the case of new technology sometimes it’s even better to learn from the mistakes of others. As the U.K. made the switch in 2005, and Canada shortly after that, merchants in the states can learn from their best practices.
There is also lots of data to back up the need for this important migration. For example, since 2005 when the U.K. went through the conversion they’ve seen a 63% decrease in counterfeit fraud. While it didn’t happen immediately, over time the switch proved invaluable to retailers and consumers alike.
You Can Still Use Your Magnetic Stripe Cards
While all of your financial institutions should have sent you upgraded cards with EMV chips, it’s possible you still have a magnetic stripe card or two laying around. You can still use those but beware of the potential consequences.
Because non-EMV payment terminals are now the path of least resistance for thieves, and one of the only ways to capture credit card information at POS terminals, your data will be at risk.
It may be a smarter choice to contact your credit card provider and ask for an EMV chip card, and not to shop at locations that don’t offer chip reader technology.