The Credit Card Chip - Who is liable for fraudulent purchases?

The Nationwide Shift to an EMV Credit Card (chip) is Well Underway in the U.S.!

EMV or better known as the credit card with the chip, is the latest technology used to protect consumers and reduce the risk of fraud.

If you are a merchant or financial institution and have not adopted chip technology after October 1, 2015, the liability could shift to you.

1. If fraud occurs after EMV cards are issued, who will be liable for the costs?

If fraud occurs when a chip card is inserted into a terminal that hasn't been upgraded, the merchant is responsible for the fraud.

Prior to this shift, credit card issuers were primarily responsible for covering fraud affecting consumer accounts and reimbursing cardholders for lost funds. Starting Oct. 1, financial institutions will still cover cardholders' accounts as before, but in some cases the institutions may be able to seek reimbursement from the merchant or merchant acquirer (a bank or company that processes payments on behalf of a merchant) if the retailer was not prepared to accept EMV payment technology.

Whoever has the lowest level of security essentially is now responsible for that unauthorized transaction.

The change is intended to help bring the entire payment industry on board with EMV by encouraging compliance to avoid liability costs.

2. Why are EMV cards more secure than traditional cards?

The magnetic strip on traditional credit and debit cards contain unchanging data. Whoever accesses that data, gains the cardholder information necessary to make purchases. That makes traditional cards prime targets for counterfeiters.

When an EMV card is dipped, data flows between the card chip and the issuing financial institution to verify the card's legitimacy and create the unique transaction data. This process isn't as quick as a magnetic-stripe swipe.

EMV technology will not prevent data breaches from occurring, but it will make it much harder for criminals to successfully profit from what they steal.

3. How do I use an EMV card to make a purchase?

Instead of going to a register and swiping your card, you are going to do what is called 'card dipping' instead, which means inserting your card into a terminal slot and waiting for it to process.

4. If I want to use my chip-card at a retailer that doesn't support EMV technology yet, will it work?

Yes. The first round of EMV cards -- many of which are in consumers' hands -- will be equipped with both chip and magnetic-stripe functions so consumer spending is not disrupted and merchants can adjust.

If you find yourself at a point-of-sale terminal and are not sure whether to dip or swipe your card, have no fear. The terminal will walk you through the process.

5. Will I be able to use my EMV card when I travel outside the country?

Yes, and no.

The U.S. is the last major market still using the magnetic-stripe card system. Many European countries moved to EMV technology years ago to combat high fraud rates. That shift has left many U.S. consumers who have magnetic-stripe cards looking for other forms of payment when they travel.