Chips and Dips: The Smart Cards Have Landed

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Chips and Dips: The Smart Cards Have Landed

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If you haven’t received one yet, a chip card is most likely on its way to you.

Chip cards (also known as smart cards or integrated circuit cards) are your new frenemies, and they are not going away.

The “Fren”

Chip cards prevent fraud, plain and simple. If you remember the Great Target Data Breach of 2014, then you know how easy it is for hackers to intercept card numbers and even duplicate the cards themselves. And it’s not just retail establishments—criminals have been able to coopt the ATMs of major banks, record the magnetic impression of the inserted cards, and then put them to use buying things like Adidas tuxedos in Moscow or what have you.

The new cards work by dipping the card into a reader, and exchanging an encrypted, unique code with the merchant. The chip itself is resistant to being duplicated, and the information it exchanges with the card reader does not include the account number on the card.

Europe and Canada have been utilizing chip-based cards (using PINs instead of signatures—a topic for a whole other blog post) for years, and many Americans traveling there have been caught unawares and faced great inconvenience when their magnetic swipe cards proved to be useless.

Even if you are not an international traveler, chip cards should make you feel safer reaching for the plastic in every environment here at home.

The “Eh, Meh”

There are also some important differences between magnetic and chip cards that are occurring behind the scenes. The driving forces behind the change are Visa and MasterCard. In order to persuade retailers to make the switch to chip, the two payment system giants are changing the way disputed charges are handled. Whereas disputed charges have historically been refunded by Visa or MasterCard, neither company will continue to do so for non-chip cards in the future—so if your card was fraudulently used to buy something at Wal-Mart, it is Wal-Mart (not Visa or MasterCard) which must reimburse you. Will this really affect us as consumers? The jury is still out, hence the big “Meh.”

The “Ees”

Not everyone likes chip cards, especially cashiers. As we make the transition, these poor souls have to contend with customers who a) may not know when to use them, b) may not know how to use them, and c) do not like waiting an extra few seconds for their transaction to process. Several executives of Wal-Mart have made public comments critical of the new cards, as well.

The Takeaway

I personally think we should embrace the new system. Waiting five more seconds at checkout may seem like an eternity, but it’s really just five seconds. If, before chip cards started coming out, a pollster would have asked people if they could tolerate spending five more seconds at checkout to avoid fraud, most people would have agreed to it. It really is a small price to pay for more peace of mind.

In fact, a chip card would have saved me from credit card fraud several years ago. Looking over my statement, I noticed a series of incremental charges from midwestern states. According to my bank, that card had been swiped—even though it was home with me in Connecticut the whole time.

Categories Category: Daily Money Management

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