What’s up with chip-enabled credit cards?

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Anya Kamenetz

I just got an unmarked envelope in the mail from my bank —with a South Dakota return address. Public service announcement: The most unassuming letters are the ones you should definitely open! It contained a brand-new debit card with a microchip.

The Smart Card Alliance estimates that around 120 million Americans have already received one of these new cards, which is called an “EMV” card for Europay, MasterCard and Visa. By the end of 2015, there will be about two of these new cards issued for every American.

Using these cards is different from what we’ve all gotten used to in credit card readers. Instead of “swiping” them through a slot, you can either “dip” them or “wave” them. When you “dip,” you place the part of the card with the chip into a card reader for a bit longer than it takes to swipe. When you “wave,” you hold it close to the reader without touching it.

The chip in the card actually communicates using a radio frequency identification device or RFID tag, which you may be familiar with from a work pass or other form of identification. Most of the new chip cards still have the old magnetic stripe as well.

Meant to be safer

The purpose of these new computer chip cards is to enhance security. When scammers copy the information from a magnetic stripe card, say with a covert card “skimmer” at an ATM or shady retailer, that info can be used again and again for fraudulent purchases.

But each and every time a chip card is used for payment, it generates a unique code for just that one transaction. That code can’t be used again.

I want to stipulate that debit card fraud is, in general, a very remote risk. Over the last decade, debit card transactions have become by far the most popular type of noncash payment. There were almost 50 billion such transactions in 2012, according to the Federal Reserve.

They also reported that among all card payments, the rate of fraud was extremely low: just 3.60 unauthorized transactions for every 10,000 in 2012. And when a fraudulent transaction is reported, it’s typically either the merchant or the card issuer that absorbs the cost, not the consumer. (Of course, this leads to higher prices for everyone in terms of things like fees, but it does reduce the fear that you will become personally liable for losses and theft.)

The United States is actually one of the last industrialized countries to move to this new chip technology, a process that requires a lot of costly investment.

The banking industry is so serious about moving to the new, safer technology that they are shifting liability. That is, if merchants don’t adopt the new cards in a timely way, card issuers won’t cover them for incidents of counterfeit fraud.

For extra security, use PIN

Customers don’t have that much to worry about in a typical non-cash transaction. Nevertheless, there are best practices with these new cards. On Oct. 9, the FBI issued a consumer warning that when you use a chip card, if given a choice, you should always enter your PIN (personal identification number). This is a lot safer, the bureau concluded, than simply signing for the purchase.

One potential unintended consequence that has been observed in other countries with EMV technology is an increase in the rate of what’s called “card not present” fraud. Simply put, because the security of in-person transactions is so much higher, thieves shift to using stolen debit card numbers to make purchases online or over the phone instead.

This is why monitoring your statement and watching out for unauthorized charges remains so important — no matter what new technology comes down the pike.

© 2015 Anya Kamenetz. Distributed by Tribune Content Agency, LLC.