Wells Fargo’s announcement that it is launching a pilot program offering microchip-embedded credit cards to American consumers is good news–especially if you travel abroad. It could spell the beginning of the end of the outmoded magnetic-stripe credit card in the U.S.
The so called EMV cards–named for Europay, Mastercard and VISA, the three card companies that rolled out the technology in 1999 as a way of standardizing payments–keep your financial information in the microchip and require you to key in a four-digit identification number when using the EMV card to make a purchase.
EMV cards, commonplace worldwide, are considered far more secure than the magnetic-stripe credit cards that are standard within the U.S. Magnetic stripe credit card technology has been around for 50 years and cards can easily be compromised. According to Security News Daily, a crook can use a cassette tape recorder to make a copy of the sensitive financial information embedded on magnetic stripe credit cards.
Card fraud costs U.S. card companies about $8.6 billion annually in the U.S., and that expense is passed on to users and merchants by the card companies through fees, interest and penalties. A study by Aite Group LLC, a Boston-based research firm, concluded earlier this year that microchip-embedded credit cards would help mitigate those costs.
Chase jumps in the ring
JPMorgan Chase is also rolling out new microchip cards this summer. While Wells Fargo is targeting frequent travelers, Chase is marketing its microchip card to upscale consumers, who tend to get lower interest rates on their credit cards but are more willing to pay annual fees for special benefits.
In both cases, though, the card will be an advantage to any American traveling to Canada, Europe or other places in the world, where microchip cards have been the standard for nearly six years. Credit card companies lose money when you are unable to use your card to make a purchase while traveling abroad. This year, the European Payments Council started allowing European banks to refuse magnetic stripe transactions if they want to, and Canadian credit cards and ATM machines will all be switched over to EMV technology by the end of next year.
Big changes for U.S. retailers
Making the same switch in the U.S. is a daunting task, however, as millions of cards and hundreds of thousands of magnetic stripe swipe terminals would have to be upgraded or replaced. But if credit card companies and consumers think a change will put a dent in that $8.6 billion in annual fraud, look for some kind of new technology to take hold in the near future–whether microchip cards, end-to-end encryption systems or the new Near Field Communication systems that allow you to make purchases wirelessly with your smart phone.