America’s credit card networks are old and out of date. In 2013, the U.S. accounted for 23% of all credit card transactions but 47% of all credit card fraud. Learn how America’s cred card network is way behind the rest of the world and how the transition is being implemented below.
This problem has been obvious for decades, and indeed the financial industry figured out how to solve it decades ago. The solution: Replace that magnetic strip with a tiny computer chip that is capable of authenticating itself in a more sophisticated way. The chip card can prove it’s legitimate without supplying enough information for a criminal to clone the card. The global standard for doing this is called EMV, after the Europay, MasterCard, and Visa networks that developed it. The EMV standard was developed in the early 1990s, and most of the developed world has been using the technology for years. In Europe, chip-based credit card transactions accounted for 96 percent of transactions in late 2014, compared with less than 1 percent in the United States. Latin America, Asia, and even Africa are ahead of the US in adopting the technology.
Upgrading is a big project
The transition has been so slow because switching to a new payment system requires simultaneous upgrades by many different parties. Banks have to send out new credit cards. Retailers have to upgrade to new equipment. If banks upgrade and merchants don’t — or vice versa — the investments will be wasted. And these upgrades are expensive. New chip cards cost as much as $4, compared with less than 50 cents for old-fashioned magnetic strip cards. New card readers can cost hundreds of dollars, compared with less than $100 for the old ones. To prevent companies from dragging their feet, major American payment networks set a hard deadline — October 1, 2015 — for switching to chip card technology. Starting today, they’re going to change credit card liability rules to give merchants and card-issuing banks an incentive to switch. Right now, merchants and card-issuing banks split liability for credit card fraud. But if a fraudulent transaction occurs after October 1, liability will fall more heavily on companies that haven’t upgraded to the new technology. This is why you may have gotten a bunch of replacement credit cards in the mail in recent weeks. By upgrading promptly to the new technology, major banks can not only reduce fraud, but can also shift liability for fraud that does occur onto merchants. Retailers — especially smaller ones — have been slower to make the switch. But starting today, they’ll have powerful incentives to do so.
SRC: Learn more about the New Credit and Debit Card Transition at: www.vox.com/2015/9/29/9415325/emv-credit-debit