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How EMV Chips Work

When people say someone has a magnetic personality, it’s generally a compliment. But for credit cards, that’s not the case. Though the U.S. has used magnetic strips on its credit cards until now, new regulations have deemed it time to give American credit cards a more robotic charicture.

China, England, Canada, and 127 other countries around the world use credit cards with a computerized chip inside them rather than an outdated magnetic strip. Instead of swiping the card, you put it in a terminal and enter a PIN number or sign your name to unlock the delicate information encrypted within the chip, sort of like a key to a safe box. Every time the card is swiped, a unique transaction code is created that can’t be used again. This technology makes it much harder and more expensive for criminals to forge the cards or steal information.

Magnetic strips are much easier to copy—which is what happened in the Target breach of 2013, in which over 40 million credit cards’ information was stolen. These strips have data such as a cardholder’s bank account number and router number encoded into them. Once cards are captured, it is relatively easy for hackers to gain access to this information. According to The Nilson Report, nearly half of all worldwide credit card losses in 2012 happened in the U.S.—until now, one of the only remaining countries to use magnetic strips.

Starting this year, all U.S. credit cards will begin using EMV chips, which stands for Europay, MasterCard, and Visa—a global standard for technology used to authenticate chip-card transactions.

One significant difference that merchants should be aware of is liability changes with the advance of EMV cards. Currently, when fraud occurs, the losses fall back on the payment processor or issuing bank. But after October 1, 2015, card-present fraud liability will shift to the least EMV-compliant party—often the merchant.

By the end of 2015, 40 percent of debit cards and 70 percent of credit cards will be issued with EMV chips.

Stay tuned for more articles on how merchants can best prepare for these new changes.

Ashley Mazelin

Ashley Mazelin is graduate of Grace College, where she received a degree in journalism. She writes content for 212 Media Studios, Saltsha, and PayProTec, and enjoys helping small businesses learn, grow, and tell their stories.

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