Technology arriving to 'chip' away at credit card fraud

A close-up of the EMV chip embedded in new debit and credit cards. (Courtesy)

A close-up of the EMV chip embedded in new debit and credit cards. (Courtesy)

A decades-old payment technology is finally getting an upgrade that'll change how payments are conducted at the point of sale.

They're called EMV chip cards, and you may have one sitting in your wallet already.

The EMV chip is an encrypted microchip embedded on the front of credit cards and is designed to bolster security when conducting a transaction. Rather than swipe a magnetic strip with a static credit card number, the card and chip are inserted into a machine and remain there while the transaction takes place.

Customers must be present to input a pin number, which acts as the main form of authorization. The chip, reader and bank then communicate together to finalize the transaction.

It makes credit card fraud much more difficult to pull off. The chips are almost impossible to counterfeit and, because the chips produce a new set of numbers for every transaction, there isn't any static information to steal. A Visa-conducted study showed that the use of EMV readers in other countries reduced fraud by 84 percent.

While the chips have been widely used in Europe for the better part of a decade, consumers in the United States are just seeing the chips on a wide scale. Banks balked for a while at the costs of the new cards, which cost on average $3.50 to issue. With over 1.2 billion cards to upgrade and 12 million terminals to replace, it's a process that is going to take some time to fully implement and cost card issuers some money.

Many of the cards for the time being will have a magnetic strip to work with older machines, but will need to use the EMV chip if the machine is EMV-compatible.

The cards will not address online fraud for the time being, as most online purchases do not require a physical card to conduct a transaction. Fraudsters can still pull the numbers and expiration dates off of databases or the physical cards themselves and make purchases online.

Online fraud accounts for nearly 45 percent of all U.S. card fraud, according to a 2014 report from the Aite Group. And because EMV cards make it nearly impossible to counterfeit a card, the 37 percent of fraud reports that involve counterfeits may shift to online fraud in the coming years.

Credit card companies are pushing the rollout sooner rather than later, requiring businesses to incorporate the technology or assume liability for fraudulent card transactions. The deadline for this rollout was Oct. 1 for most businesses. Point-of-sale gas pumps will have until 2017 to upgrade.

Depending on the business, this could be costly. Some EMV-compliant readers can cost anywhere from $500-$1,000 each. For some local businesses, however, it wasn't that big of a change.

"I purchased a new machine. I think I upgraded mine three months ago," said Dave Akers, owner of Kingman Furniture. "I didn't want to wait 'til the last minute."

Akers' business isn't heavily impacted by the use of the EMV cards. When they make a sale, Akers is the only person processing the card. Employees at the point of sale are one of the main sources of fraud.

He also doesn't mind the extra time it takes to complete a transaction. Before, a customer could swipe the card and have it back immediately while the card reader communicated with the bank. Now the card has to remain in the reader for the duration of the transaction, adding a few more seconds to the transaction before a card can be returned.

For a place like the Hualapai Kwik Stop, that extra time can add up and lead to some unexpected inconveniences.

"It's a little bit inconvenient because the customer has to place it and leave it there, while in the past they just needed to swipe it," said Dion Lauck, owner of Hualapi Kwik Stop.

"Now, they stick it in and have to leave it there until the transaction is complete, and some people are leaving their cards behind."

His store doesn't have an issue with credit card fraud, but Lauck is supportive of the extra security measures if they help.