Credit Card Chip Puts Brakes on Fraudulent Charges

Credit cards

Beginning today, the expense of fraudulent credit card charges may not necessarily be the responsibility of credit card issuers. That’s because yesterday was the deadline for retailers to adopt a more advanced computer chip embedded credit card payment system. Retailers that fail to install the new system may now be responsible for fraudulent credit card charges if their systems are compromised.

Credit cards infused with a computer chip function differently than a traditional magnetic strip card. Unlike swipe stripe cards, chip cards are inserted into a slot on a card reader. The card remains in the slot for several seconds while it interfaces with the network. During this process, a unique, one-time use transaction code is generated to facilitate payment. If the retailer’s network is compromised by a fraudster, the unique transaction code cannot be used for fraudulent charges as the code has already been used.

A chip embedded card isn’t using a new form of technology to conduct transactions. In fact, the technology has existed for the last two decades. Much of Europe already adopted the technology since that time, which has helped reduce the number of fraudulent credit card transactions in those countries. For the United States, the cost of transitioning to the new system has been a significant deterrent. Now, the potential financial burden of not upgrading may significantly outweigh the initial cost of implementation.

While some retailers have installed the necessary payment terminals to accept the new cards, many of their networks are not yet capable of working with the transaction technology. Also, some card issuers have yet to send their card holders chip cards to replace their old swipe stripe cards.

The transition period for some retailers to upgrade payment equipment to accept computer chip technology may take some time as they work through the costs and logistics of doing so. As they bring these systems online, the treasure trove of credit card data siphoned from retail networks by fraudsters will inevitably become less valuable.

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