What is an EMV Chip-Enabled Card?

Chances are, you have at least one EMV chip-enabled card in your wallet. Many retailers now are accepting card swipes and card inserts. Inserting your card uses the EMV chip to process your payment. EMV stands for Europay, Mastercard and Visa, and has been used for years throughout the world. In 2015, a mandate went into effect that outlined fraud liability between financial institutions and merchants. This law made it so that whoever – either the merchant or the card issuer – was not supporting EMV chip security assumed the liability for the transaction. In the end, EMV chip technology was integrated into our everyday lives. 

Do Chip-Enabled Cards Provide Increased Protection Against Fraud? 

The U.S. made the switch to chip cards and put this law into effect to curb rampant merchant breaches and credit card fraud. 

Experts pin the high rate of fraud on the outdated system the U.S. had been using. The magnetic strips on your old credit and debit cards store static, unchanging data. That means anyone who gets their hands on that data can do whatever they want with it, like racking up huge bills, emptying accounts and taking out loans in your name. 

In contrast, EMV cards create a unique transaction code for each purchase you make. That code cannot be used again, so even if a fraudster steals the chip information from a point of sale, they will not be able to use that transaction number for another purchase. The data transmitted during each transaction is also encrypted, adding more to the security measures it offers. 

EMV technology will not prevent data breaches from occurring, but it will make it much harder for criminals to profit from what they steal. Experts are hopeful this shift will continue to significantly reduce credit card fraud in the U.S., and studies show that U.S. counterfeit fraud rates have already decreased since the change. According to Visa, chip-enabled merchants saw a significant drop in fraud. 

How Do Chip-Enabled Cards Work? 

When your chip card is used, data is transmitted from the card and the issuing financial institution to verify the card’s legitimacy and to create the unique transaction code. This process takes a bit longer than a swipe. 

Aside from inserting a card, EMV cards can also support contactless card reading, known as near field communication, or NFC. NFC-equipped cards are tapped against a terminal scanner, which reads the data from the card’s embedded computer chip. Although this type of transaction is faster and more consumer-friendly, the equipment needed to scan them is expensive, so this option is not yet widely available. 

Who is Held Reliable for Fraud Liability with Chip-Enabled Cards? 

The shift to EMV presents several changes for merchants and financial institutions. Issuing new cards and purchasing new processing technology was an expensive undertaking. But there’s more than just cost involved. The switch to EMV represents new liability rules. 

Though fraud is harder to pull off with chip cards, it’s still possible. If an EMV card is frauded, who is held responsible? Since Oct. 1, 2015, the liability for card fraud has shifted to whichever party is the least EMV-compliant in the transaction. This means if the merchant is not equipped with chip-card reading equipment, they will be held responsible. If the consumer’s financial institution has not provided them with an EMV card, they are footing the bill. 

So, while replacing payment processors and issuing new cards is an initially expensive venture, it will save businesses and financial institutions the huge cost of being held responsible for fraud payouts in the long run. 

Is Chip or Tap Safer? 

Both chip and contactless cards provide strong security against counterfeit fraud. The unique transaction code generated by EMV technology ensures that the information cannot be used fraudulently if intercepted. 

Contactless cards have a slight disadvantage in that they can be more easily read by unauthorized scanners if someone gets close enough to your card. However, the range of NFC technology is quite limited (typically a few centimeters), and the transaction still requires a unique code, making it difficult for a thief to conduct fraudulent transactions. 

Contactless cards may pose a slightly higher risk if lost or stolen since they don’t always require a PIN or signature for small transactions. However, most banks and credit card issuers set low limits on these types of transactions, and any fraudulent use can usually be quickly identified and disputed. 

What Are the Different Types of EMV Chip Cards? 

EMV chips come in several types, primarily distinguished by how they communicate with payment terminals and how they store and process data. Here are the different types of EMV chips: 

1. Contact EMV Chips 

Contact EMV chips are embedded in cards that need to be inserted into a card reader. The card is inserted into a slot in the payment terminal, making direct contact with the terminal’s reader. The chip then communicates with the terminal to authenticate the transaction and generate a unique transaction code. Contact EMV chips provide strong security through dynamic data authentication, which makes it difficult for fraudsters to replicate the card. Each transaction generates a unique code, reducing the risk of fraud. 

2. Contactless EMV Chips 

Contactless EMV chips use Near Field Communication (NFC) technology, allowing the card to communicate with the terminal wirelessly. Instead of inserting the card, you simply tap or wave it near a contactless-enabled terminal. The terminal reads the information from the card’s embedded chip through radio-frequency identification (RFID). Similar to contact EMV chips, contactless EMV chips also generate a unique transaction code for each transaction, ensuring that stolen data cannot be reused. However, because contactless transactions do not require a physical connection, they can be completed more quickly and conveniently. 

3. Dual Interface EMV Chips 

Dual interface EMV chips combine the features of both contact and contactless EMV chips in a single card. These cards can be used either by inserting into a contact reader or by tapping on a contactless terminal, depending on the merchant’s terminal capabilities. Dual interface cards offer the flexibility of both transaction methods while maintaining the same level of security. They utilize EMV technology for both contact and contactless transactions, ensuring that each transaction is protected by dynamic authentication. 

How Can I Protect Myself from Online Fraud? 

Though the EMV transition helped cut in-store fraud, it could give consumers a false sense of security online. Chip card or magnetic strip, for an online purchase, makes no difference at all. When buying something on the internet, it’s up to you to be extra vigilant and ensure you aren’t becoming a victim of fraud. 

Fortunately, there are ways to protect yourself against online fraud. 

• Always shop with a reputable retailer. 
• Read reviews before sharing your card information. 
• Never give personal information over email. 
• Don’t authorize a wireless money transfer for a website or merchant if you are not familiar with them. 
• Consider using tokenized systems like ApplePay, where your personal information is transformed into a numerical token instead of an actual card number. 

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This article is for educational purposes only. WeStreet Credit Union makes no representations as to the accuracy, completeness, or specific suitability of any information presented. Information provided should not be relied on or interpreted as legal, tax or financial advice. Nor does the information directly relate to our products and/or services terms and conditions.