Everything You Need to Know About the New Generation of Payment Cards

By Nat Sillin
There’s something new in plastic and it’s coming to a mailbox near you.
In the coming months, be on the lookout for replacements to arrive for many of the debit and credit cards you carry. You might have already received some of these new cards, which look mostly the same – except for that little gold or silver colored microchip that’s embedded inside the card. That chip will make it tougher for thieves to use stolen information to create counterfeit cards.
By year-end 2015, an estimated 63 percent of cards in American wallets will feature this new technology aimed at better identification of users and derailing payment card theft. The chip adds a unique one-time use code that changes every time you use your card to make an in-store payment. That automatic security code change makes your data nearly impossible to use to create a counterfeit card. The transition to chip cards is expected to be nearly complete by year-end 2017.
Counterfeit or “cloned” cards account for about two-thirds of in-store fraud – currently a $3 billion problem, according to Boston-based research firm Aite Group. The chip technology represents an improvement over the magnetic strip on the back of cards currently used to process in-store purchases. Card cloning happens when thieves use online data breaches and hand-held or installed skimming devices to collect card data at the point of sale.
The card-based chip technology is the same foundation that many emerging mobile payments programs are using to secure transactions. For example, Apple’s new Apple Pay system uses the same chip technology as these new cards.
Keep in mind that you’ll be using these cards a little differently at the checkout counter, but transactions will stay simple. Here’s how they work:

• You’ll need to insert a chip card into a card payment terminal and keep it there until your purchase is complete. No more swiping.
• You’ll be asked to sign, enter a PIN, or simply pay-and-go just like you do today with your magnetic strip card.

Don’t panic – the magnetic strip on the back of cards will continue to work with older terminals for the near future. The only big change you’ll notice as a new chip card user is a prompt from the terminal, your sales clerk or server to insert your card into the new slot on the terminal that reads the chip instead of the strip on the back. Finally, these new terminals will generally remind you to take your new chip cards with you when you go.
For merchants – the collective name for the stores, restaurants and other businesses where you use credit and debit cards every day – the transition to chip cards is moving fast. According to a recent survey by Visa, approximately 90 percent of business owners are aware of chip technology and about 70 percent have already upgraded their equipment or have scheduled plans to do so. Current estimates show that 47 percent of U.S. terminals will be able to read chip cards by the end of the year.
There’s one more incentive for the businesses you use to get on board with chip card technology. Starting October 1, liability for some counterfeit fraud may shift from the card-issuing financial institutions to retailers unless they are able to accept and process chip card transactions.
For the smallest businesses, some low-cost options for upgrading card acceptance terminals can cost $100 or less. Square, for example, recently announced a new $49 card reader that accepts chip cards as well as mobile payments and they’re giving away 250,000 of them to small business customers at no cost. Many of these systems are replacing traditional electronic cash registers at many locations.
If you travel overseas regularly, you’ve probably already seen chip card technology in action. It’s based on a global standard called EMV and is already at work in countries moving to cashless options for private and public goods and services.
Chip cards represent the most significant change to U.S. payment card security in decades and may advance the cashless movement here. It’s taken most countries 2-3 years to make the switch and industry experts say the United States is on track with that timeline.
One final note. Zero liability* fraud protection will continue with the new chip cards, but it’s always a good idea to check all credit and debit transactions regularly for accuracy.
Bottom line: Chip cards represent a big step forward in security for credit and debit card customers. The biggest adjustment you’ll likely see? You’ll be inserting the card in a terminal instead of swiping it.
* Visa’s Zero Liability Policy covers U.S. – issued cards and does not apply to certain commercial card transactions or any transactions not processed by Visa. You must notify your financial institution immediately of any unauthorized use. For specific restrictions, limitations and other details, please consult your issuer.
This article is intended to provide general information and should not be considered legal, tax or financial advice. It’s always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.
Nathaniel Sillin is the Head of Global Financial Literacy at Visa Inc. and runs the company’s financial literacy program in the United States, which includes the award-winning Practical Money Skills for Life and What’s My Score programs. As part of his work at Visa, Sillin is a frequent public speaker and an active voice in the financial literacy community.
Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.