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Award travel enthusiasts are usually up to date on the latest credit card sign-up bonus offers, and which cards offer benefits like elite status or lounge access, but another important card feature gets much less attention. Today, TPG Senior Points & Miles Correspondent Jason Steele shines a spotlight on credit card security to help you decide which cards will best keep your accounts safe.
When was the last time you listened to music on a cassette player? It’s probably been a while, since the magnetic tape has long been superseded by newer, better technologies. Yet, we continue to use credit cards with similar magnetic stripes every day.
In 2015, the credit card industry in the United States will continue to shift away from magnetic stripe technology toward credit cards with embedded microchips, often referred to as EMV smart chips. In today’s post I’ll explain precisely what this technology does, why it’s useful, and how it might impact your future strategy for travel rewards credit cards.
What are EMV chips?
EMV stands for Europay, MasterCard, and Visa, the companies originally behind this standard. In fact, the standard isn’t new; it has been used in Europe for over a decade, and is already in service in most regions of the world apart from the United States. In 2012, all of the major credit card networks in the U.S. announced that they would finally begin the process of migrating to this technology.
The EMV chip itself is a small microchip that appears as a gold or silver metallic colored square, visible on the front of a credit card. The chip is read when a card is inserted into a credit card terminal, and it physically contacts the reader. This process is called “dipping”, as opposed to the traditional “swiping” of a card, and unlike the magnetic stripes, the EMV chips use a form of encryption to prevent data from being stolen when your card is out of your possession.
I’ve had the opportunity to tour some of the facilities that print credit cards and embed EMV chips. After a card is printed, a machine drills a small cavity in the face of the card, and the EMV chip is then glued into place. Since these facilities are highly secure, I was not allowed to photograph the process.
Chip and Signature vs. Chip and PIN
There are two different implementations of EMV technology: one is called Chip and Signature, while the other is called Chip and PIN. The vast majority of EMV cards issued in the United States use Chip and Signature, which (as the name implies) still requires a signature at the point of sale (when the card is present). Chip and PIN cards are compatible with terminals that require a PIN number, which is often the case at unattended kiosks in Europe and elsewhere. Locations that require Chip and PIN equipped cards include train stations, toll booths, and gas stations.
Why this new technology is important
So why should the average American cardholder care what kind of technology is used in credit cards? There are two good reasons:
The first is security. In the aftermath of so many high profile security breaches at major retailers, the recent move to EMV enabled cards can’t come too soon for the credit card industry. When a retailer is hacked, or when credit card numbers are stolen by other means, criminals can easily encode this information onto another credit card’s magnetic strip—a process called cloning. And one of the easiest ways to acquire credit card numbers is to use a magnetic card reader, either when your card is out of your hands, or by affixing a card reading device to a gas pump or ATM—a process called skimming. With the EMV chip system, skimming and cloning cards become vastly more difficult (though not impossible).
The other reason why American cardholders, and travelers in particular, should embrace EMV technology is compatibility. Anyone who has been to Europe lately has probably found that an EMV chip card is now essential to ensure that your credit card transactions are completed smoothly. Sometimes the magnetic stripe works, but other times it unpredictably and stubbornly refuses. Sadly, I’ve met many frustrated Americans traveling abroad who were unable to use their cards in certain locations, and the problem now extends far beyond Europe, as EMV readers are rapidly being deployed in South America, Canada, and other parts of the world.
EMV deployment in the United States
On the merchant side, EMV compatible terminals can already be seen at many retailers; just look for a place to insert your card underneath the numerical keypad. Nevertheless, I have yet to encounter a merchant terminal that has been enabled to accept EMV transactions, so always have to swipe my cards in the United States. I’ve been told that enabling the chip readers in compatible terminals requires an expensive software update, and retailers are just biding their time for now.
That will change as the first major milestone in EMV deployment occurs on October 1,2015. While it’s not a hard cutoff, that date is being referred to as when liability shifts for the American credit card industry. Starting in October, the least technologically equipped party will pay the cost of fraudulent transactions. If a retailer has an EMV compatible terminal, but the bank doesn’t issue an EMV compatible card, then the bank is responsible for the cost of fraud. However, if the cardholder has an EMV compatible card and the retailer hasn’t upgraded its systems, then the retailer will be liable.
With that in mind, you can expect EMV chip usage in the U.S. to quickly gain traction later this year, although gas stations and ATMs will have until October of 2017 to become compliant. In any case, credit card users won’t be responsible for the cost of a fraudulent transaction, no matter how they use their cards. The Fair Credit Billing Act of 1974 limits a cardholder’s liability to $50, but nearly all card issuers have a $0 liability policy.
Credit cards with EMV smart chips
Until recently, cardholders who were planning to travel outside the United States had to make a special effort to find an EMV equipped card. In the last few months, however, it has become difficult to find a card from a major issuer that is not offered with an EMV chip. For example, Chase recently added EMV chips to the Freedom card, and has offered EMV chips in its Ink Plus, Chase Sapphire Preferred, and other travel rewards cards for at least a year.
Since chip equipped cards cost about one dollar to manufacture, and non-equipped cards only cost about 10 cents each, many issuers are still only offering these cards upon request. If the credit card in your wallet does not have an EMV chip, and you’ll be traveling outside the United States, then you should contact your card issuer to request a new card with the chip.
Although most EMV cards issued to Americans are only compatible with the Chip and Signature system, there are a few that offer true Chip and PIN compatibility at this time. The Barclaycard Arrival Plus World Elite Mastercard offers this compatibility, and has no foreign transaction fees, making it perfect for international travel. In addition, PenFed, the Pentagon Federal Credit Union, has made all of its cards Chip and PIN compatible, and it doesn’t impose foreign transaction fees either.
Check out TPG’s Rundown of US Credit Cards with EMV Chip Technology for more options. However, note that because the post is from last May, some cards that currently offer EMV technology may not appear on the list.
America is finally joining the rest of the world in implementing the latest credit card technology, and it feels good to catch up!
What has your experience been using credit cards with EMV chip technology? LIMITED TIME OFFER. Aside from the 100,000 points welcome bonus (available until 8/8/18), Amex recently made huge improvements to the Business Platinum Card, including the fact that you will now earn 50% more points on purchases of $5,000 or more, earn 5x on flights and eligible hotels at Amextravel.com and cardholders will receive a $200 airline fee credit each year.
LIMITED TIME OFFER. Aside from the 100,000 points welcome bonus (available until 8/8/18), Amex recently made huge improvements to the Business Platinum Card, including the fact that you will now earn 50% more points on purchases of $5,000 or more, earn 5x on flights and eligible hotels at Amextravel.com and cardholders will receive a $200 airline fee credit each year.