Credit cards with chips: Are the urban legends true?

New technology usually comes with its share of consumer concerns. It's no surprise that urban legends and myths have proliferated about the new EMV chip credit cards. Here are a few of the most common, along with our expert opinion as to their veracity:

1. PINs don't matter.

   True.

   Researchers from the University of Cambridge discovered that a fraudster with access to the right equipment could fool a merchant terminal into thinking that any PIN is valid. In the United States, merchants won't be required to collect PINs. Overseas travelers will still have to comply with local customs, and that means setting up a PIN for your American credit card before traveling abroad.

2. Thieves can scan EMV credit cards from a distance.

   False.

   Late night infomercials hawk aluminum wallets and other gadgets that claim to block thieves from zapping your account details right from your purse or pocket. You don't need those to protect your credit card information. Unlike other, stronger chips based on RFID technology, EMV chips in contactless credit cards work only in very short range from payment terminals.

   Even if a thief managed to nab your card's contents with a suitcase-sized mobile scanner, he or she would only have access to its raw codes, not your actual account details. Trying to use a copied code would result in a declined transaction and a fraud investigation from your card issuer.

3. Skimmers can copy EMV card data from a compromised payment terminal.

   True, but unlikely.

   When New York police busted a 111-member identity theft ring, they learned that the crew got most of their compromised credit card numbers from skimmers at restaurants and retail stores. By passing account authorizations directly to payment gateways without storing credit card numbers, merchants reduce the risk of internal theft of customer data.

4. EMV cards will make online shopping harder.

   False.

   Merchants still determine their own risk tolerance for online and phone orders, but a series of payment platform initiatives can help retailers make remote transactions even more convenient. Some banks have experimented with online cardholder verification using free USB readers that verify an attached EMV card. Visa and MasterCard have launched their own online verification services, while Google and PayPal intend to woo merchants with highly secure online "wallet" services.

Ready or not, EMV is coming

Merchants reluctant to update their point-of-sale equipment to read EMV will soon face the same economic incentive European businesses have known for years. In August, Visa set an October 2015 deadline for merchants to install EMV payment terminals or risk absorbing the cost of all disputed credit card transactions.

By the end of 2017, gas stations with "pay at the pump" terminals will have exhausted their industry's exemption. Within six years, American merchants, like their European counterparts, will have little or no reason to keep accepting credit cards with magnetic stripes.

Visa advances fraud prevention

Visa took an early stance favoring EMV credit cards overseas, and stands ready to advance new card technology in the United States. A Visa spokesperson familiar with the company's fraud prevention program told CardRatings.com, on condition of anonymity, that merchant and bank losses due to credit card fraud remain below 6 cents for every hundred dollars transacted on Visa cards.

"Thanks to these investments in advanced fraud-fighting technologies, not only at the card level but also at the network level where transactions are analyzed for fraud risk, fraud remains at historic lows. Additionally, cardholders are protected from fraudulent Visa purchases with zero liability protection," adds the spokesperson.

Check your wallet

Because American banks mostly issue the contactless version of EMV-enabled cards, you might already have a next-generation payment device in your wallet. How can you tell? If you haven't traveled outside the U.S. recently, odds are you probably haven't had occasion to do anything with your card other than swipe it through a reader. That's because merchants are not yet obligated to install the new readers.

But it's not only the merchants who are putting off wholesale adoption of the new cards. According to industry analysts at Corporate Insight, banks could be doing better at promoting the convenience of their new cards. However, leading national card issuers such as American Express, Chase, Citi, Discover and Wells Fargo have had EMV cards on the street for some time. As merchants get closer to their 2015 deadline, you can anticipate seeing a lot more education about how to "wave and pay" or "tap and go."

About the Author

Curtis Arnold, a nationally recognized consumer educator and advocate, has been educating consumers about credit cards since 1998. New! Curtis is the author of 'How You Can Profit from Credit Cards: Using Credit to Improve Your Financial Life and Bottom Line' (FT Press, 2008). He is also the co-author of the upcoming Complete Idiot's Guide to Person-to-Person Lending (Alpha Books/Pengiun Group USA, April 2009), a contribitor to The Ultimate Allowance (InnerWealth Publishing, 2008) and is extensively featured in 42 Rules^TM for Driving Success With Books (Super Star Press, January 2009).