6 things you need to know about the new chip cards

Before you go, we thought you'd like these...
Before you go close icon
New 'Chip' Credit Cards Replace Older Cards


If you've recently received a new credit card with a strange, fingernail-sized metallic square on the front, and you have no idea why you got it or what to do with it, take heart. Most of your fellow cardholders are just as confused.

These new EMV cards are also known as chip cards or smart chip cards. They're being pitched as an important step forward in credit card security. They also represent a seismic shift in how Americans use their plastic cards.

EMV cards have been used in other countries for many years but have only just recently reached American shores. Banks and retailers had resisted taking on the expense of updating cards and point-of-sale terminals due to the expense involved – especially during the recession. However, that all changed when Visa, MasterCard, American Express and Discover announced a couple years ago that if merchants didn't accept EMV cards at checkout by Oct. 1, 2015, those merchants would be liable for any fraudulent credit card transactions. In the past, it was banks that typically absorbed those costs.

With Oct. 1 rapidly approaching, banks and merchants across the nation are working to meet the deadline. Many businesses won't make the deadline – for any number of reasons, including apathy and lack of awareness – but many will. That's why you might have seen strange-looking new terminals at your favorite store and why you might have received one of these new cards in the mail.

The truth is, however, most people are thoroughly confused about what these cards do and why they're necessary. With that in mind, here are simple answers to six of the most frequently asked questions about EMV.

8 PHOTOS
Chip credit cards, smart chip cards
See Gallery
6 things you need to know about the new chip cards
BERLIN, GERMANY - DECEMBER 10: Memory chip on a credit card, master card on December 10, 2014 in Berlin, Germany. (Photo by Thomas Trutschel/Photothek via Getty Images)
A customer enters their pin number as they make a chip and pin payment via a Verifone Systems Inc. credit card payment device at a restaurant in London, U.K., on Friday, May 22, 2015. Credit and debit cards that can be used by tapping the reader are gaining users, and mobile apps are set to further boost the popularity of contactless paying. Photographer: Simon Dawson/Bloomberg via Getty Images
An employee demonstrates the use of an iZettle chip and pin reader mobile payment device at the iZettle AB headquarters in Stockholm, Sweden, on Friday, Aug. 28, 2015. Swedish payments startup iZettle AB, a rival to Twitter Inc.founder Jack Dorsey's Square Inc., raised 60 million euros ($67 million) to expand in Europe and fund a plan to offer merchants cash advances on future card sales. Photographer: Johan Jeppsson/Bloomberg via Getty Images
BERLIN, GERMANY - DECEMBER 10: Memory chip on an EC card on December 10, 2014 in Berlin, Germany. (Photo by Thomas Trutschel/Photothek via Getty Images)
Service Manager Morgan Mallory holds a Rail table side credit card processing device at Tableau, a Dickie Brennan & Co. restaurant, in New Orleans, Monday, June 15, 2015. Dickie Brennan & Co., which operates four New Orleans restaurants, expects to pay more than $25,000 to replace card readers and software once chip cards are phased in and magnetic stripe cards, which are easier for thieves to copy, are phased out. (AP Photo/Gerald Herbert)
Patron Jake Kratz, of Philadelphia, pays his tab with the Rail table side credit card processing device at Tableau, a Dickie Brennan & Co. restaurant, in New Orleans, Monday, June 15, 2015. Dickie Brennan & Co., which operates four New Orleans restaurants, expects to pay more than $25,000 to replace card readers and software once chip cards are phased in and magnetic stripe cards, which are easier for thieves to copy, are phased out. (AP Photo/Gerald Herbert)
FILE - In this Nov. 18, 2009, file photo, a MasterCard credit card with a computer chip is posed for a photo in Gelsenkirchen, Germany. By autumn 2015, millions of Americans will switch to credit cards with a computer chip instead of a magnetic strip _ 50-year-old technology that lingers on the back of U.S. cards and is easily copied by thieves, leaving people vulnerable to fraud. (AP Photo/Martin Meissner, File)
of
SEE ALL
BACK TO SLIDE
SHOW CAPTION +
HIDE CAPTION

First, are they really safer? Yes, they really are safer – for two reasons: They make your physical card harder to counterfeit, and instead of sending all of your credit card information to a merchant when you buy something, they send a unique code that a hacker can't use if they find it. If a hacker tries to use that code to make a fraudulent purchase, it won't work. It's like stealing an expired password.

How will I know I have one? Look for a metallic, thumbnail-sized square on the front of the card. That's the chip. If it isn't there, you don't have an EMV card. If your EMV replacement cards haven't arrived yet, there's a good chance your bank will send you one by the end of the year. Or if you want one sooner, call your bank and ask for one.

How do you use them? No more swiping. You'll "dip" instead. You place the card in a slot, where it's held while you either sign your name or enter a PIN to make the purchase. When it's over, pull the card out and go on your way.

Are EMV cards the same as chip-and-PIN cards? Not necessarily. There are two types of EMV cards:

  1. The ones that make you sign for a purchase – so-called "chip-and-signature" cards.
  2. The ones that make you enter a PIN– so-called "chip-and-PIN" cards.

The vast majority of chip cards distributed in the U.S. are chip-and-signature cards. They aren't as safe as chip-and-PIN cards – simply because it's easier to forge someone's signature than to know their PIN – but banks thought requiring a signature rather than a PIN would create less confusion for consumers and ultimately make the transition to EMV a little smoother.

Will the cards still have magnetic stripes on them? Yes, for the foreseeable future, all U.S. cards will still have magnetic stripes. You'll still be able to swipe them, but there's a catch: If you swipe the card, the new technology will never kick in, and your card information will be sent to the merchant in the old, much less secure way it has for years.

Ultimately, what's the bottom line? EMV cards are a long-needed, major step forward in fraud prevention, even though they're not perfect. (For example, they don't really do anything to combat online or "card-not-present" fraud.) However, if you don't have one yet – or don't know what to do with the one you have – don't worry too much. The old, traditional way of swiping your card using the magnetic stripe isn't going away anytime soon. Just know that your transactions won't be as secure if you keep doing it that way.

Copyright 2015 U.S. News & World Report

More from U.S. News:
Chip-and-pin credit cards to consider before traveling to Europe
10 money-saving websites to check before shopping
8 ways to maximize your credit card rewards

Read Full Story
Credit Card Compare

Credit Card Compare

Whether you're looking for great travel rewards or low annual fees, find the card that's right for you.

Compare Now

From Our Partners