While chips on credit cards are relatively new to the United States as of 2015, the chips on credit cards have been around in Europe since the 1980s. Eventually, every credit card will become a chip credit card, since chip and PIN cards offer additional security. Previously, credit card information could be easily stolen by a skimmer from the magnetic strip on the back of the card. The skimmer creates a duplicate copy onto a blank card, replicating the information. Comparatively, the information on chip credit cards are encrypted in the little chip on the face of the card. As you insert your chip card into the terminal, the information is meant for only the terminal and the processor. Triple data encryption, or 3DES, uses three cipher algorithms to encrypt the information. Chips make it much more difficult for a thief to steal your card information because of the unique encryption, thus making them more secure.
There are both advantages and disadvantages in the integration of chip credit cards into the financial payment world for both the consumer and the merchant.
For consumers, the advantages are primarily centered on the importance of higher security. As time passes, RFID protective wallets have also been introduced to protect the consumer, since new thieves are developing newer technology. No credit card will ever be completely secure, yet the chip credit card is significantly more secure than the prior magnetic strip credit cards. The disadvantages include the fact that there is no added security for when it comes to online transactions, as well as the delay in processing speeds at checkouts in comparison to magnetic strip cards. In previous years, credit card breaches have been effective reminders at the holes in security that magnetic strip cards allowed. Credit card fraud costs the United States billions of dollars each year, and while a portion of that is taken on by retailers, merchants and banks, consumers end up paying higher prices at the stores and banks. The goal is for chip credit cards to cut even a small fraction of those costs, making the overall payout quite large.
Being a merchant, the advantages and disadvantages are different than that of a consumer. To accommodate the growth of chip credit cards, merchants will need to migrate to EMV, the global standard for inter-operation of integrated circuit payment cards, ATMs and point-of-sale terminals. This migration requires an expensive upgrade to merchant’s current ATM’s, processing terminals and point-of-sale systems. Liability also shifts, in some situations, from the issuers of the cars to the acquirers and the merchants. However, the advantage is that the conversion to EMV will reduce the number of counterfeit and fraud transactions, which in turn reduces the merchant’s costs and losses. Also, many of the new EMV terminals offer the acceptance of mobile payments, providing more options to the consumer. The sending of data for EMV transactions is different from that of magnetic strip sales, as more data is sent with the EMV transactions. This means that merchants have to coordinate with their acquirer to be able to support both message types during the integration of chip credit cards. In the future, chip cards will have the ability to offer new revenue options through loyalty programs and marketing offers stored in the chip.
Chip credit cards are the present and the future of payment processing, and the sooner consumers and merchants make the switch, the sooner they can reap the benefits of the technology.