Say Goodbye to Magnetic Stripe Credit Cards in October

Going out of style soon: credit cards with magnetic stripes.

Banks and credit-card companies intend to replace these striped cards with cards bearing microchips. Called EMV cards, which stands for Europay Mastercard Visa, after the companies that formed the standard for the chips, the cards cannot be hacked by fraudsters, according to supporters of the technology.

On Oct. 1, banks and credit-card companies are going to enlist retailers in their fight against the soaring rates of credit-card fraud around the world, which was said to reach $16.31 billion in global losses this year, according to The Nilson Report, a payments-industry trade journal.

In the past, and until Oct. 1, banks and credit-card companies covered fraud losses. After Oct. 1, retailers will be responsible for frauds committed with magnetic-stripe cards.

In an effort called the EMV Liability Shift, banks and card companies on Oct. 1 will change liability agreements. If a fraud takes place on a transaction made with an EMV card, banks and card issuers will assume liability. If a fraud takes place on a transaction with a magnetic-stripe card, the retailer is on the hook for the loss.

“It’s an incentive for merchants to upgrade to new chip technology,” said Randy Vanderhoof, director of the EMV Migration Forum, a payments-industry group involved with the transition from magnetic-stripe cards to EMV cards.

Eventually, credit-card companies will issue only EMV cards. In the next year, it is estimated that 15 percent to half of the credit cards held by Americans will be EMV cards, according to industry watchers. (In a separate agreement, retailers selling gasoline will go through an EMV migration in 2017.)

But retailers are needed to help push this process along by installing EMV point-of-sale terminals at their shops. Vanderhoof said that prices for the terminals range from $30 for a stand-alone payment terminal line, or more than $200 for a terminal that is leased from a payments agent. Some retailers might order an EMV terminal through the company they run payments through.

The transition to EMV credit cards is expected to put a major dent in credit-card fraud for physical retailers using magnetic-stripe credit-card terminals. Counterfeit cards using magnetic stripes make up 49 percent of credit-card fraud losses around the world, according to The Nilson Report.

However, if criminals are pushed out of one market, they’ll find another one. If they cannot rip off goods from stolen credit cards at bricks-and-mortar shops, they’ll go online, said payments-industry watchers such as Monica Eaton-Carbone, cofounder and chief operating officer forChargebacks 911, a Tampa, Fla.–based company that manages chargebacks for retailers.

“We have a whole bunch of criminals who steal credit cards. They’re not going out of business,” Eaton-Carbone said.

Online retailers often use predictive analytics programs to root out fraudsters. Eaton-Carbone suggested that online retailers research and check who is making purchases on their sites.

Some hallmarks of fraud, she noted, include a card’s shipping and billing address are markedly different, such as the shipping address is in Florida, but the billing address is in Colorado. Or the same shipping address is used with 40 different credit cards. “Look for bogus emails,” Eaton-Carbone said. “It might be connected with a fake person.”