Chip-Based Credit Cards Are a Decade Old; Why Doesn’t the US Rely on Them Yet?
Earlier this week, mobile payments company Square announced that it had developed a credit card reader that will verify purchases from an embedded chip on the card. Currently, US consumers primarily rely on swipe-and-sign credit cards, which give card details to a merchant through the magnetic stripe on the back. But because the swipe-and-sign system became overburdened with instances of fraud, MasterCard, Visa, and other financial groups decided in 2012 that they would transition their systems to a chip-based setup called EMV (eponymous for EuroPay, MasterCard, and Visa, the three primary developers of the standard) by October 2015.
Square is hoping to capitalize on this transition by being one of the first companies out of the gate in the US to offer small and medium-sized business owners a smaller, less-expensive alternative to buying a whole new set of credit card terminals.
The EMV standard works using a chip that’s embedded in a credit card, which effectively acts as a mini-computer. Instead of swiping quickly and having your card give its details to a merchant’s point of sale (POS) system, an EMV card creates a unique code for each transaction and (ideally) requires the consumer to enter a PIN associated with the card instead of relying on a signature. Because of this, EMV is often called chip-and-PIN. Making a purchase with an EMV card also requires the card to be present in the card reader throughout the transaction.