Have you noticed most new credit cards have a small metal square in the front? Credit card issuers are going to great lengths to convince us cardholders how great these chips are, but I’m not impressed.
Why I don’t care
These chips have been in use in Europe for over two decades. In fact, they’re called EMV chips after the companies behind the standard: Europay, MasterCard, and Visa.
If you look closely at the 1995 film French Kiss, Kevin Kline’s character uses a chip-enabled credit card (fraudulently, it turns out). The sad fact is, American retailers are just starting to catch up, but using a chip instead of a magnetic strip will likely have a negligible effect on fraud — as Kevin Kline demonstrated on screen.
Another reason these chips won’t have a big impact is because two-thirds of credit card fraud is committed during so-called “card not present” transactions, like ordering online or over the phone. In those situations, customers simply supply their credit card number, and the chip plays no role.
Here’s what these chips will stop: When a credit card’s data is stolen, used to clone a new card, and that card is used in person. But that isn’t very common.
The best protection you have is very old and low tech: The Fair Credit Billing Act of 1974 mandates that cardholders can only be held responsible for $50 worth of fraudulent transactions. And in practice, nearly every card issuer offers a zero liability policy. So if these new chip card are protecting anyone, it’s the card issuers, not their customers.
What would make a difference
There’s another version of these EMV chips that actually does represent a significant step forward in fraud prevention. It’s called Chip and PIN, and it requires cardholders to enter a four-digit PIN when completing a transaction, much like we all do at ATM machines and with many debit card purchases.
This system is now prevalent in Europe — as many Americans learn when their cards are rejected, even though they’re equipped with a chip. You’ll usually find the Chip and PIN requirement at unattended kiosks such as train stations, toll booths, and some gas pumps. The Barclaycard Arrival Plus is available to Americans with actual chip and PIN compatibility, but hopefully there will be more in the future.
Sadly, America is still in the backwater of credit card technology, but at least we are making some progress. Yet as long as credit card users realize that fraud is the bank’s issue, not theirs, they can continue to shrug their shoulders at this new feature.