2.) How it works
Like their counterparts, chip cards are processed through the two steps of card-reading and verification. However, there’s no quick swipe involved. Instead, you’ll be asked to insert, or dip, your card into a terminal slot, and then leave it there as you wait for the transaction to process.
When your card is dipped, data is transmitted from the card chip and the issuing financial institution to verify the card’s legitimacy and to create the unique transaction code. This process will take a bit longer than a swipe.
Aside for dipping, EMV cards can also support contactless card reading, also known as near field communication, or NFC. NFC-equipped cards are tapped against a terminal scanner, which reads the data from the card’s embedded computer chip.
Contactless transactions are faster and more consumer-friendly than dipping; all you need to do is tap! Unfortunately, though, the equipment needed to scan them is expensive, so this option is not yet widely available.
After you’ve inserted your card into the payment terminal, the card acts just like your ordinary magnetic-stripe card. You may be asked for a PIN or a signature, which will be transmitted to the payment terminal for verification and approval. If your merchant is not equipped with a chip-card reader, your EMV card can also be read with an ordinary swipe.
You may find yourself at a point-of-sale terminal, unsure of whether to dip or swipe. No worries – the terminal will guide you. If you enter a card into a chip-reader slot that hasn’t been activated, it’ll prompt you to swipe your card. Likewise, if you try swiping instead of inserting into an activated chip-reader, you’ll be prompted to dip your card instead.
3.) Fraud liability changes
The shift to EMV presents several changes for merchants and financial institutions. Issuing new cards and purchasing new processing technology is an expensive undertaking.
But there’s more than just cost involved. The switch to EMV represents new liability rules.
Though fraud is harder to pull off with chip cards, it’s still possible. In the event that an EMV card has fraud, who is held responsible?
The rule with transactions conducted using counterfeit or stolen magnetic-strip cards is pretty straightforward: consumer losses fall back on the payment processor or issuing financial institution, depending on the card’s terms and conditions.
Card chip-fraud works somewhat differently. Since the Oct. 1, 2015 deadline created by the four major U.S. credit card companies, the liability for card fraud has shifted to whichever party is the least EMV compliant in the transaction. This means if the merchant is not equipped with chip-card reading equipment, they will be held responsible. If the consumer’s financial institution has not provided them with an EMV card, they’re footing the bill.
So, while replacing payment processors and issuing new cards is an initially expensive venture, it will save businesses and financial institutions the huge cost of being held responsible for fraud payouts in the long run.