Credit and debit cards are getting an upgrade in security in the form of data-storing chips. The switch from magnetic strips—which are easy to duplicate and therefore steal—to computer chips that are more secure should be a minor inconvenience for shoppers, but it could prove to be more of a headache for retailers accepting those cards.
Chip Cards vs. Magnetic Cards
The changes in how cards work has been spurred by the major data breaches at stores like Target. The old-style, magnetic strip cards contain embedded information that never changes in that strip. It is easy for hackers to steal that data and use it to create a counterfeit card. The new cards have a computer chip with encrypted data. That data is still vulnerable to hackers, but even if stolen it’s useless without the actual card. Losses from credit card counterfeiters in the U.S. will reach $3.6 billion this year. The switch to chip cards is expected to dramatically reduce losses.
The Transition for Retailers
Using chip cards is a little bit different for shoppers, but 38 percent of consumers already have these cards and the transition has been simple. For retailers, it’s a little more difficult. It will take time and billions of dollars to make the upgrades necessary to fully transition to chip card readers. Target alone has spent $100 million making the transition.
In addition to the expense, retailers face wait times. With the push for making the transition, delays are being seen in getting the new systems certified. Stores can’t go live with their chip card readers until the certification happens. The current bottleneck is leaving retailers vulnerable to liability. As of October 1, those stores not using chip readers are liable for fraud. Some stores are facing wait times of up to a year for certification.
Signature Verification Limits Security
In Europe, chip cards are kept even more secure by requiring users to verify with a PIN when making purchases. Here, the new chip cards will only require a signature. Retailers are unhappy with the choice and would prefer the security of PIN verification. In spite of retailer complaints, banks have decided to stick with signature verification to save money and because they say the hassle of a PIN will turn off card users.
The transition to chip cards is happening now and is already complete in many stores and for many card users. The change is expected to reduce losses associated with counterfeit cards, although experts warn that thieves will now turn their focus on ecommerce sites.
Click the image to enlarge: