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Do Chip Credit, Debit Cards Help Prevent Fraud?

The switch to chip credit and debit cards is underway.

When we walk into some big stores, we hear an increasingly familiar buzzer sound going off all around us, signaling customers with chip credit and debit cards that it's time to pull their cards out of the machines.

Yet, we then head into our neighborhood grocery store or dry cleaners and see tape over the insertion slot for chip cards, reminding us to swipe our cards, because the store has not yet implemented the new chip-reading technology.

What's going on? It's a puzzle that still surprises many financial experts.

It's been more than a year since major credit card companies Visa and MasterCard announced a new policy that shifts responsibility for fraudulent purchases made with stolen credit cards into the hands of the retailers where the purchases were made — that is, unless the store switched over to chip readers by the Oct. 1, 2015 deadline.

Banks have already sent customers all over the country replacement credit and debit cards that contain the new embedded chip technology. But experts are left asking, what good are they if the stores still aren't equipped to accept them?

Are chip credit, debit cards really more secure than swipe cards?

Chip cards utilize what is called EMV technology, or Europay/Mastercard/Visa technology, named after the three companies that set the new chip card standards. Every time the chip inside the card is activated during a transaction, it creates a new, unique transaction code to confirm the purchase and convey the cardholder's information to the store.

Swipe credit and debit cards use the same transaction code to confirm a purchase and relay cardholder information every time they are used. Therefore, it is much easier for criminals to skim that code and use it to make fraudulent purchases, experts say.

Experts say the integrated circuits in the chips are nearly impossible to duplicate.

Sounds good—but not all experts are convinced. Representatives from the FBI said chip card technology is not as perfect as it sounds.

“The new EMV chip cards were designed to help curtail credit card fraud; however, there are still vulnerabilities with these cards," a representative from the FBI's Criminal Investigative Division Financial Crime Section told The Washington Times.

What's taking so long for businesses to start accepting chip cards?

It’s a two-step process for a business to start accepting chip cards.

First, businesses have to install new card readers that allow customers to insert their card into a slot for the chip to be read. This can be expensive.

Second, once they have the new machines installed, they have to wait for officials from the credit card industry to come and certify the machines before they can begin being used.

Many companies complain that they have been waiting months for an official to certify their machines.

A security expert with the National Retail Federation, told U.S. News & World Report, “The banks made a huge deal about setting a [Oct. 1] deadline, and then dropped the ball. All the card readers you see [in stores] are evidence that retailers have done their part."

Are chip card transactions really longer and more frustrating?

Whereas a customer can usually swipe their magnetic credit card in the reader, and within a second or two see that their transaction is processing, it takes a little longer with chip readers.

First of all, there can be confusion over when you are supposed to insert your card. If you insert it too soon, you have to remove it, and sometimes the transaction has to start all over again.

Once you do insert your chip card into the slot at the appropriate time, it takes longer for the system to read the chip and approve the transaction. Compared to around five seconds for swiped cards, it can take about 20 seconds for a chip card to process.

Editor’s note: This content was lightly edited and updated on Feb. 2, 2018.

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