Do EMV Chip Cards Protect Online And Phone Purchases?

Do EMV Chip Cards Protect Online And Phone Purchases?

February 4, 2016         Written By Jason Steele

If you haven’t noticed, the latest credit card technology is already here. Credit cards with embedded smart chips were sent out in great numbers last year, and retailers are rushing to install terminals that can read them. These embedded microchips are often referred to as EMV chips after the companies that were behind the creation of this new standard: Europay, MasterCard, and Visa.

How EMV chips work

Traditionally, credit cards have used the magnetic stripes on the back of the cards to transmit information to credit card terminals. This technology dates back to the 1960s and to this day, the information is not transmitted securely using encryption. This makes it relatively easy for the data from your credit card to be compromised. From there, it’s a somewhat simple process to recreate your credit card, also known as cloning. Once your credit card is cloned, a criminal can use it anywhere.

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Although EMV smart chip technology has been in use in Europe and other parts of the world for 20 years, it hasn’t been adopted in the United States until recently. In October of 2015, the United States credit card industry underwent a so-called liability shift, which transferred the liability for fraudulent transactions between merchants and credit card issuers, if one of them failed to be EMV compatible. So if a fraudulent transaction occurred and a card issuer hadn’t provided its customer with an EMV equipped card, then the card issuer would be held responsible for the cost of the fraudulent transaction. But if fraud occurred when the card issuer provided the customer with an EMV equipped card, and the merchant hadn’t used an EMV compatible card reader, then the merchant became liable for the cost of the fraud.

Replacing the magnetic stripe with a microchip works to fight fraud in two ways. First, the microchips transmit credit card information in an encrypted manner. In fact, the exchange of information between the chip and the terminal actually goes two ways, unlike magnetic stripes which are simply read. In addition, it is exponentially harder and more expensive to reproduce a card with a microchip than it is to clone a card with a magnetic stripe.

The role of EMV equipped cards when making purchases online or over the phone

For all the strengths of the EMV smart chip system, it is really only used when the credit card itself is present in a transaction. When cardholders make purchases over the phone or through the Internet, then they will still be providing their credit card account information manually to the merchant. So in this sense, the existence of an EMV smart chip will do nothing to directly enhance the security of the transaction.

Nevertheless, the EMV system does have an indirect security benefit, even when the transaction is performed over the phone or online. Should the customer’s credit card information be compromised, it would be much harder to use that information to create a cloned credit card that has an EMV smart chip embedded. So in this narrow sense, the EMV smart chip system could potentially make it harder for stolen credit card information to be used fraudulently.

Credit card fraud and the law

Thankfully, Federal law holds cardholders largely harmless to the cost of fraudulent transactions, whether or not they use a credit card with an EMV smart chip. The Fair Credit Billing Act of 1974 dictates that credit card users will not be held liable for more than $50 in the event of a fraudulent transaction, yet in practice, nearly every credit card issuer waives that limit by offering a zero liability policy.

The most important thing you need to know is that you have to carefully review your credit card statement each month in order to identify and report fraudulent charges. But once you report a fraudulent charge to your credit card issuer, then you will not be responsible for paying it. In fact, the card issuer will immediately remove the charge from your account, pending its investigation.

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How EMV cards could encourage fraud over the phone and the Internet

Since EMV cards are more secure than regular credit cards with just magnetic stripes, criminals will have a hard time cloning them. But if someone steals your credit card number, it will be much more likely that they will use it over the phone or the Internet. In addition, transactions where the card is not present, such as those over the phone and the Internet, will become the preferred method of credit card fraud, now that cloning a card has become too expensive and impractical.

By understanding how EMV equipped credit cards work when making transactions over the phone and through the Internet, you can continue to enjoy the security and convenience of your credit cards without worrying about the risk of fraud.

The information contained within this article was accurate as of February 4, 2016. For up-to-date
information on any of the terms, cards or offers mentioned above, visit the issuer's website.


About Jason Steele

Jason Steele is a journalist that covers credit cards, travel and consumer credit. As one of the nation's leading experts in credit cards, Jason has contributed to dozens of travel and personal finance outlets including NerdWallet, Credit Karma and the Points Guy, where he serves as the Senior Points and Miles Contributor. Jason has also been widely quoted in mainstream media in outlets such as the Washington Post, the USA Today and Bloomberg Business Week. Jason is also the founder and producer of CardCon, which is the annual Conference for Credit and Credit Card Media.
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