6 things you need to know about the new chip cards

New 'Chip' Credit Cards Replace Older Cards
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.

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

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Originally published