Integrated circuit cards, also knows as IC or chip cards, have been a global standard in credit and debit card transactions for many years, but relatively new for merchants in the United States. Chip and PIN cards--the title given to this technology in Ireland and Great Britain--is also known as EMV throughout Europe, which stands for Europay, MasterCard and Visa.
"Chip" refers to a embedded computerized chip in the smart card, and PIN is the personal identification number a customer uses in place of a signature. The biggest difference between a traditional magnetic stripe and chip and PIN card for users is the authentication process, using a 4-digit PIN number, much like today's debit cards, in place of a signature and visual verification by the merchant.
Reduction in Fraud
The purpose behind adapting this technology is fraud reduction. President Barak Obama signed an executive order to embed technology in all government issued credit and debit cards in October of last year, after major breaches of security at stores like Target and Home Depot. The White House said the government will lead by example in an effort to be less susceptible to major fraud.
And though this technology won't fight all types of financial fraud, other countries have seen a notable decline in fraud activity. Great Britain reported a 60 percent drop in fraud after adopting the EMV technology.
How does it Work?
A magnetic swipe card contains the consumer's data directly on the card, read at the terminal where the transaction occurs. Cloning a card requires a device to overwrite a magnetic strip--relatively inexpensively--for fraudulent purposes.
A card with an embedded chip contains cryptographic keys. A terminal sends information to the chip using these keys, then sends the transaction information back to the terminal, making the process of cloning these cards much more complicated and expensive. Additionally, a second step using a PIN adds further security. If someone steals a card, he cannot use it unless he also has the PIN number.
October Deadline for Merchants
Merchants are hustling to be able to accommodate chip and PIN technology by October of this year, facing the shift of fraud liability from banks to themselves if a customer's personal information is compromised. Use of the technology will require updated checkout systems that will likely not be fully accomplished until the end of the decade. Smaller merchants may choose to risk the liability to avoid paying for upgraded checkout systems.
If they have not done so already, throughout this year, banks will be issuing upgraded cards to consumers, and many already offer a chip and signature card that works in either situation. By the end of this year, approximately 70 percent of U.S. credit cards and 40 percent of debit cards are expected to transition to chip and PIN technology.
Are you preparing to transition your terminal and back-end process from magnetic swipe to chip and PIN?
If you're looking for ways to increase your businesses cash flow for technology upgrades, contact Bizlender. Find us online or call 855-404-3070.