If you haven’t received one yet, you could be getting one soon: new credit and debit cards embedded with microchips designed to cut down on fraud.
Bank of America, Wells Fargo and other card issuers are pushing to get the new cards to consumers ahead of an October 2015 deadline. That’s when Visa, MasterCard and other card networks could hold issuers like banks liable for fraud if they haven’t made the new cards available to consumers.
Businesses are also feeling pressure to upgrade their card readers. Visa and MasterCard could hold businesses liable for fraud if they aren’t equipped to accept the new cards after the deadline.
Here are five things to know about these new cards making their way to your wallet.
1. It’s all about the chip
The back of your old card has a black, magnetic strip that gets read when you swipe it.
You won’t have to swipe your new card, thanks to the microchip. Instead, you’ll insert it into a store’s card reader, which will read the microchip to see if the card is authentic.
That’s supposed to make it harder for crooks to create a counterfeit card using your data.
Right now, experts say it’s relatively easy for criminals with stolen consumer information to counterfeit a card. They can use the stolen data to reprogram just about any card that has a magnetic strip, such as a gift card, and then use that card in a store.
The new cards will still have strips, to be used with old card readers. But the microchips add another layer of complexity, making it harder to create a fake card, industry officials say.
2. It won’t prevent all fraud
The new cards help ensure fraudsters won’t use your data to make a purchase in a store. But they won’t prevent your data from being stolen in the first place, experts say. The breach affecting Target last year, where data was stolen from millions of customers, would still have happened.
“Many of the recent credit card data breaches would not have been solved ... because the account number is still available on retailers’ databases and can be hacked,” said Peter Olynick, a payments expert for Carlisle & Gallagher Consulting Group, a Charlotte-based company that serves the financial services industry.
Chip cards are expected to cut down on counterfeit cards being used in stores – but fraudsters could increasingly turn their attention online, using stolen data to make purchases over the Internet, industry officials say.
“That’s what we’ve seen with other countries as they have rolled out (chip cards),” Olynick said.
3. Small shops are wary
Large retailers will likely convert their systems to accept the new cards. But smaller businesses are wondering if and when to upgrade.
For small businesses, especially, the conversion could be costly at a time when many are struggling to grow revenues in a recovering economy.
Dwane Walton, owner of Charlotte-based Total Merchant Supply, which sells payment-processing equipment to small retailers and restaurants, estimates 98 percent of small businesses in Charlotte are not prepared to accept chip cards.
Cost is a big reason, he said. Some businesses face spending as much as $1,000 per register to upgrade, he said.
Walton said he doesn’t see businesses clamoring for the technology, even though the deadline is only about a year away. He said many small businesses are too focused on making ends meet to worry about the October 2015 deadline. “It’s just not a priority.”
Charlotte-based Walker’s Drug Store is not yet able to accept chip cards. Nathan Ikner, the store’s co-owner, said the business plans to upgrade its systems next month.
He estimates it will cost as much as $4,000 apiece to change a total of four terminals spread across the pharmacy’s two locations. Those added costs come as the business, which employs about 20 people, has yet to see its revenues return to prerecession levels, he said.
“It’s definitely an expense that I don’t think any business wants at this point,” Ikner said.
Tim Hamilton, co-owner of East Boulevard gift shop Paper Skyscraper, said his business also plans to upgrade to accept chip cards. He said it’s important that his business protect its customers from fraud, but he can understand cash-strapped business owners who remain hesitant to upgrade.
“If you don’t have the money, and you’re choosing between buying stock for the store and a new (card) swiper ... it’s a tough choice.”
4. The U.S. is catching up
In the U.S., the use of chip cards has lagged other parts of the world. Deployment of the technology is picking up as banks and businesses worry about being held liable for fraud.
Today, card issuers are usually held responsible for fraud against their customers, according to experts.
Next year, if a fraudster swipes a counterfeit card at a business that hasn’t upgraded its equipment to accept chip cards, the business could be held liable for the losses.
The 2015 deadline affects most merchants. Gasoline stations have until 2017 to upgrade to accept chip cards.
The U.S. has continued to rely on magnetic-strip cards, which use a technology that is decades old.
In recent months, there’s been rising pressure to make consumer data safer as the list of large-scale data breaches affecting major retailers continues to grow.
This month, home improvement giant Home Depot became the latest major U.S. business to report a breach. Besides Target, retailers confirming data breaches in the past year have included Neiman Marcus, P.F. Chang’s and Goodwill.
Some banks have been making chip cards available for years to customers who regularly travel to places like Europe, where the cards are common. Some banks have also been giving the cards to customers who have requested them. Now, banks are more widely distributing the cards as the 2015 deadline draws closer.
5. Apple may change the game
Even as consumers switch to the chip cards, it’s unclear how much longer shoppers will be buying things with plastic.
This month, Apple unveiled a payment system that will allow shoppers to make debit and credit card purchases in stores using their iPhone 6 or Apple Watch, eliminating the need to use a plastic card. Industry officials will be watching closely to see if Apple Pay takes off.
Unlike chip cards, Apple Pay will “token-ize” payment data – a process in which your payment information is replaced with a unique, one-time identifier whenever you make a purchase, Olynick said.
Apple Pay will rely on devices that use wireless technology to complete a transaction made by phone. To buy something in a store, you’ll hold your phone near the device, and press a sensor on your phone, which sends your payment.
Credit and debit cards can also be programmed to interact with that same wireless technology, allowing you to just tap your card on a device. Visa and other card networks are already making those so-called “contactless” cards available, but some experts don’t yet see a high demand for them.
“It has been around for a while,” Olynick said. “However, it is not particularly popular.”
Apple says it will launch its payment system in October – and retailers and the payment industry will be closely watching.
“If there’s one company that can change consumer behavior, Apple will be that company,” said Sam Maule, a payments expert for Carlisle & Gallagher.