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Chip Cards and Payment Trends: What Business Owners Need to Know and Do in 2016

Today, many credit cards come equipped with chip technology that requires you to “dip” your card into a slot. But beyond the need to no longer swipe, do you know how chip cards are different from traditional credit cards?

If not, the following Q&A will give you an overview of what you need to know about chip cards.

What exactly are chip cards?

Chip cards go by many names, including smart cards, smart-chip cards, chip-enabled smart cards and EMV (Europay, MasterCard and Visa) cards, to name a few. What they all have in common is a small, metallic square, or chip, on them. The chip cards differ from traditional magnetic strip cards in important ways.

Magnetic strip cards contain sensitive information about you. If someone steals that card, the thief can take advantage of the data stored in the card to make fraudulent purchases because the data is unchanging.

In contrast, chip cards create unique transaction codes each time they are used to make a purchase. Each code can only be used once. So if a thief tried to use that data again, they’d be out of luck.

Why are more cards featuring chips?

Thanks to the unique transaction codes chips can generate, chip cards are much less prone to identity theft than traditional magnetic strip cards. And that’s welcome news since identity theft and big data breaches are common crimes. It is estimated that in 2015 credit card fraud costs in the U.S. alone will reach $10 Billion. Credit card issuers in the U.S. are finally catching up to Europe, Canada and the Pacific.

How do I use a chip card?

The most common way is to insert it into a slot in the credit card reader. The reader will then tell you when you can remove the card. It typically takes longer to process a payment this way than it does to simply swipe a credit card.

A less common way to use chip cards is through contactless card reading. With this method, a chip card that’s tapped against a scanner is all it takes to make a purchase. Expect more of these types of scanners to appear as chip cards become more widely adopted.

Can I use a chip card if a retailer’s scanner doesn’t have the special slot?

Mostly likely, yes. The first chip cards mailed out in the United States have both chip and magnetic swipe capabilities to let both consumers and merchants adapt to the change. While most large, national retailers already have card readers with chip-processing capabilities, smaller, mom-and-pop shops often do not. Overall, it’s estimated that only 44 percent of merchants will have chip card machines by the end of 2015.

When will chip cards completely replace magnetic swipe cards?

It may take a while. While both MasterCard and VISA set Oct. 1, 2015, as the deadline to switch magnetic swipe cards to chip cards, many cardholders have not received their new chip cards yet. This is especially common for people whose cards are issued by smaller banks.

Debit cards, meanwhile, are lagging behind credit cards when it comes to converting to chip technology. It’s estimated that only 25 percent of U.S. debit cards will have chips by the end of 2015.    

Do other countries accept chip cards?

Many do. In fact, the United States is one of the last countries to widely adopt chip cards. Europe migrated to chip cards years ago to help fight credit card fraud. As a result of that switch, many merchants in those countries are wary of accepting magnetic swipe cards.

That said, there are still many other countries around the world that are not equipped to accept chip cards.

Who is responsible for fraudulent charges made on a chip card?

Typically, a fraudulent charge  will be the responsibility of the payment processor or the bank that issued the card. This is similar to how liability for fraudulent charges from magnetic strip cards works.

On Oct. 1, 2015, many major credit card issuers started shifting liability for fraudulent charges from the credit card companies or issuing banks to the merchant if the merchant did not have a card reader that could read chip cards. This move has encouraged merchants to invest in machines that accept chip cards.

Even though fraud will become rarer with chip cards, it will not disappear. And some of the biggest expenses aren’t the fraudulent charges, but the time and money it takes to restore your identity.

Identity recovery coverage can cover these sorts of expenses and more—for for as low as $20 a year for basic coverage. Learn more about this important and affordable coverage by talking to an insurance professional like an Erie Insurance Agent in your community.

ERIEĀ® insurance products and services are provided by one or more of the following insurers: Erie Insurance Exchange, Erie Insurance Company, Erie Insurance Property & Casualty Company, Flagship City Insurance Company and Erie Family Life Insurance Company (home offices: Erie, Pennsylvania) or Erie Insurance Company of New York (home office: Rochester, New York).  The companies within the Erie Insurance Group are not licensed to operate in all states. Refer to the company licensure and states of operation information.

The insurance products and rates, if applicable, described in this blog are in effect as of July 2022 and may be changed at any time. 

Insurance products are subject to terms, conditions and exclusions not described in this blog. The policy contains the specific details of the coverages, terms, conditions and exclusions. 

The insurance products and services described in this blog are not offered in all states.  ERIE life insurance and annuity products are not available in New York.  ERIE Medicare supplement products are not available in the District of Columbia or New York.  ERIE long term care products are not available in the District of Columbia and New York. 

Eligibility will be determined at the time of application based upon applicable underwriting guidelines and rules in effect at that time.

Your ERIE agent can offer you practical guidance and answer questions you may have before you buy.