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New Credit Cards May Come with Old Technology

By Dave Colby

It's an irony played out daily in Silicon Valley.

Paying for lunch, a high-tech CEO hands over her credit card to the waiter. The waiter, and the card, disappears. The waiter returns, hands back the card, and the CEO signs the bill.

Trouble is, that transaction is done with technology so old that credit-card issuers in Europe, Canada and other parts of the world abandoned the practice more than 10 years ago.

In fact, as our CEO travels with that same credit card outside of the United States, she may find herself holding a worthless piece of plastic.  That's because the card doesn't contain a special computer chip embedded inside, and ATMs and merchants in foreign lands now routinely require credit cards to have a technology monikered "chip and PIN."

Smack dab in the middle of technology's Eden, the CEO's well-used card has no chip. It has an old-fashioned magnetic stripe that can be duplicated, cloned, and later used by thieves.

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But things are changing. Sort of.

Effective October 1, 2015, a liability shift in the United States will penalize whoever (merchant or issuer) has not upgraded to the new EMV chip technology if there is fraud in a credit card transaction. (EMV stands for Europay, MasterCard and Visa, who created the chip in Europe.)

So a new card may be in the mail and on its way to you.

Unfortunately, at first, only a few U.S. issuers will go the extra security difference and offer chip and PIN cards like their European counterparts. Instead, you'll probably receive a unique EMV chip card, but you'll still be signing payment receipts with merchants, rather than using a PIN. Using an individually-known PIN is more secure. You'll be using chip and Sign, rather than the latest chip and PIN technology.

Here's how it works. In Europe, after a meal, a waiter brings the bill to you at your table along with a portable pay terminal. You insert your EMV card into the terminal, authorize the purchase with your PIN on that same terminal, and the transaction is finished. No disappearing credit card, no vulnerable magnetic stripe, no signature to fraudulently duplicate.

Why aren't card issuers going the extra step, and moving straight to chip and PIN?

Several reasons are cited. Cost is one. A chip and Sign card costs issuers about $.25 to make. A chip and PIN card is more expensive, ranging from five to ten times the cost, anywhere from $1.25 - $2.50 to produce, according to ROAM, a maker of mobile point-of-sale readers and software.

Another reason may be the reluctance of issuers and merchants to forgo the long-standing practice of "signing for the bill" at the end of a meal.

Credit cards issued in the United States will soon become vastly more secure once the new EMV chips are embedded within them. U.S. travelers with the cards will be in better shape when outside the country.

But to buffer yourself with the best and latest technology, ultimately, you'll want your card to have both chip and PIN technology.

With it, your only real concern is old-fashioned: the monthly balance due.

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