Are you a little confused about how the new chip credit cards work? In October, more stores began using credit card terminals that read smart-chip-enabled cards as part of a fraud liability shift, which strongly encouraged the use of this technology. And while the technology appears to be working somewhat smoothly at stores, many credit card users are still unsure as to what these smart chips do, and what they don't.
So to help clear up some of the confusion, here are facts and myths about using this new system.
Myth #1: The chip credit cards are a new technology
Although these credit cards are finally being implemented in the U.S., the use of microchips in credit cards dates back to at least to the mid-1980s, and the current standard called EMV was created more than 20 years ago. EMV stands for Europay, MasterCard and Visa, and this system has been in use in Europe for decades. In fact, you can even spot a chip credit card in the 1995 movie "French Kiss," starring Meg Ryan and Kevin Kline, when his character attempts to use a stolen card that has a microchip in it.
Myth #2: Chip credit cards will prevent all fraudulent transactions
The microchip technology being deployed in the U.S. is designed to combat only a specific type of fraud called cloning, where a phony credit card is created using the data stolen from a card's magnetic stripe, or hacked in some other way. Unfortunately, there are many other pathways for criminals to commit credit card fraud.
Remember how Kevin Kline's character in "French Kiss" attempted to use a stolen credit card? In the movie, he gets away with it because the card hasn't been reported stolen yet. And in real life, there is still little to stop a thief from using someone else's credit card before it's reported missing. For example, there are many other forms of credit card fraud that involve "card not present" transactions that take place over the phone or online, where it doesn't matter if a card has a smart chip. (If fraud occurs, your best bet for catching it early is monitoring your accounts. It's also smart to check your free annual credit reports and to monitor your credit scores, because an unexplained change could suggest fraud. You can check two of your credit scores for free every month on Credit.com.)
Myth #3: If you have a chip in your credit card, you need a special wallet to protect it
In the credit card industry, a chip card is referred to as a contact payment system, which means that it must be inserted in the card reader to transmit its information. So a thief can't steal information from your credit card's smart chip without actually touching it. And unlike your card's magnetic stripe, the information on an EMV chip is encrypted. The myth that someone next to you could hack your chip card without touching it was likely a result of confusion with other emerging payment technologies such as Near Field Communications (NFC) and Radio Field Identification (RFID). Both of these technologies use wireless protocols that could conceivably be breached in some circumstances.
Myth #4: Americans can now use their chip cards abroad without problems
Long before the credit card industry began deploying chip credit and debit cards in the U.S., some Americans clamored for this technology in order to ensure compatibility with chip-reading terminals used in Europe and other parts of the world. So while having chip-enabled cards will help on your next overseas trip, U.S. cards still use a slightly different protocol. Most credit cards issued in the U.S. use the chip-and-signature protocol, which requires just a signature to authenticate the transaction. But in Europe and elsewhere, merchants may be using the chip-and-PIN system, especially at unattended kiosks that sell train tickets, as well as at gas stations and toll booths. Like an ATM card, the chip-and-PIN system requires the input of a four-digit PIN. Although most chip-enabled cards issued in the U.S. aren't compatible with the chip-and-PIN standard, a notable exception is Barclaycard, which offers several chip-enabled cards that are compatible with both chip-and-signature and chip-and-PIN systems.
Myth #5: To receive a card with this new technology, you need to apply for a special one
Several years ago, you would have needed to apply for the right credit card in order to get one with a smart chip. But today, nearly every credit card issued in the U.S. is available with an EMV chip. If your current credit card doesn't have one, you can simply contact your card issuer and request a compatible replacement. Since these cards are more expensive, many card issuers are issuing chip-enabled cards only upon request or when their customers' existing cards expire.