Credit Cards

How Your Chip Credit Card Will (and Won’t) Protect You From Fraud

Almost 12 years ago, major credit card brands began introducing the ‘smart card’ to consumers, and its adoption has accelerated in the past few years. This new form of plastic was in part introduced because it promised to deliver heightened security through the use of an embedded chip or, ‘integrated circuit.’

And yet, as the prevalence of chip cards shot up last year, credit-card fraud not only didn’t decline, it actually rose. Approximately 15.4 million customers in the U.S. found themselves victims of credit card fraud in 2016 resulting in $16 billion worth of losses. That figures represents an 18% increase over 2015, when far fewer consumers had chip cards than have them today.

Why The New Cards Haven’t Eliminated Fraud

Clearly, owning a card with a chip is no panacea against its fraudulent use. Here are some reasons that these cards haven’t put much of a dent yet in the incidence of card fraud, and some tips on how you (and why) you should continue to be vigilant in your credit-card security habits.

PIN-and- Chip Security Is Still Rare. In some countries where chip cards are widely used, you’re required not only to push the card into the chip reader but enter your PIN number as well--an additional step to thwart someone who may have obtained your card illicitly. That step is fairly rare in North America, at least as yet, and for a variety of reasons. Instead, merchants often require nothing more of you than to slide the card into the reader, or they ask for your signature, supposedly for extra security. However, in practice, signatures are rarely verified, and the step more lends the illusion of additional security than its reality.

Many Chip Cards Also Have Magnetic Strips. During this period of technological transition for cards, some merchants are still using card readers that take data not from a chip, but from an old-fashioned magnetic strip on the back of the card. Consequently, even many chip cards still have a magnetic strip as well, because card issuers don’t want to lose business or inconvenience consumers by offering cards that don’t work with the point-of-sale technology found in stores.

The strips are part of the security problem with cards. The data they carry can be more readily read illicitly (by devices that can read a card merely by passing close to it, for example) than data that’s stored on a chip. It’s also far easier and simpler to build skimmers--faux readers that fraudsters install in ATMs and elsewhere--that can steal the data from a strip than a chip.

Indeed, there’s evidence that, as cards move towards chip enhancement, criminals are stepping up their hacking of magnetic strips, so they can make the most of the resources they invested in exploiting that older technology.

Transactions Are Moving Online More--And The Fraud Is Following. According to the U.S. census, total e-commerce sales for 2016 increased by about 15 percent over 2015, offering a greater incentive for credit-card crime to shift more to online activity, as well. The fraudsters are employing a wider and more sophisticated portfolio of tools to steal data online, from breaching the databases of e-retailers and other online companies through “botnets”, to impersonating banks through phishing schemes, to hacking into the growing range of Internet-connected devices.

What Consumers Can Do

Despite efforts from major names like Mastercard and Visa, consumers must be their own best enforcers to combat credit-card theft. Here’s what you can do.

Regularly review your credit-card report. All three major reporting agencies (Experian, Transunion, and Equifax) offer this information once a year free of charge. Information on these reports will help uncover the rising incidents of new-account fraud--as in criminals who have stolen your information using it to open new accounts and obtain new credit cards.

Choose Chip-and-PIN Transactions When You Can. Favor banks and merchants that offer the option of such a method, which offers the most security for point-of-sale purchases.

Be cognizant of digital tactics like “phishing.” This deceitful practice occurs when programmers design advertisements which resembling bank promotions or other online financial services. Hackers can use data retrieved from these pop-ups to generate online purchases. Stick with purchases and logins on familiar sites that you trust. Venturing out to unrecognized e-commerce platforms can all but invite fraud.

Consider Using Just One Or Two Credit Cards. The reason is simple: With fewer cards, the task of monitoring activity is easier. You’ll have fewer credit reports to review. Additionally, you can get a more in-depth understanding of the specific measures a credit card company takes to ensure your security. Designate your ‘go-to' card and find out what features the company employs to prevent fraud. You can also explicitly ask for fraud alerts. These systems reduce the time between the occurrence of theft and when you recognize the problem.

Criminals are always thinking of new ways around the system. Therefore consumers must exercise the same creativity in taking an active role in their security. Don’t let the mere presence of a chip lull you into a false sense of security.

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Example of how we calculate the rewards rates: When redeemed for travel through Ultimate Rewards, Chase Sapphire Preferred points are worth $0.0125 each. The card awards 2 points on travel and dining and 1 point on everything else. Therefore, we say the card has a 2.5% rewards rate on dining and travel (2 x $0.0125) and a 1.25% rewards rate on everything else (1 x $0.0125).