Chip and Dip: New Technology to Protect Against Credit Card Fraud

The future for a more secure way to pay is changing from swiping to "dipping" your credit cards.

The banking and credit card industries have promised the change will better protect you from fraud, but the NBC4 I-Team discovered the opposite could still happen.

A tiny microchip called EMV is embedded in the new generation of credit cards.

"You’ll ‘dip’ it into a special reader that generates a unique verification code for each transaction," said Sean McQuay of Nerd Wallet. "It’s much more secure than the old magnetic stripes, which use the same embedded code every time."

The NBC4 I-Team visited The Yellow Balloon hair salon in Studio City to see what consumers think about the new microchip and found that many people are unaware of the upcoming changes.

"It was just mailed to me," one customer said. "I hadn’t actually thought about what that could mean."

"Until you told me today, I had no idea about any chips going into any credit cards," another said.

Oct. 1 is the deadline for retailers to install the EMV card readers and many businesses are not prepared.

"We are seeing a lot of the big national chains upgrading but we’re not really seeing that trickle down to the small and medium businesses. Especially not in the restaurant sector," McQuay said.

Security experts say that’s a recipe for trouble. The switch to microchip credit cards must be universal for the new system to work.

Otherwise, the risk of fraud can actually increase as it did in the United Kingdom when it made the switch to chip card technology.

McQuay said from 2004 to 2014, card fraud increased 120 percent.

"Fraudsters basically want to get it while the getting’s good ... and they recognize they have a limited ability to do so," said McQuay.

The reason stores should upgrade to new chip readers is liability. After Oct. 1, if their customer’s cards are compromised, those same stores that didn’t upgrade are on the hook for your financial losses instead of the banks.

As we approach October, here are three tips to prepare for the switch to chips.

Learn how your chip card works so you can use it correctly. Remember, stores may still not be up to speed even though you are.

Keep a close eye on your credit card activity if you aren’t already. This will help you quickly spot any fraudulent charges.

Be careful at the automated gas station pumps. Gas stations have been given an extra two years to make the switch to EMV since installing chip readers on the pumps is very expensive.

"There’s going to be an increased interest in one, just stealing credit card info more quickly, while they still can, and still focusing on the stores and the consumers that are still using mag stripe technology," McQuay said.

More information about credit card trends can be found here. Test your fraud knowledge with Nerd Wallet's quiz here.

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