Andy Wise prepares you for first-gen "chip" cards

MEMPHIS, TN (WMC) - By October 1, all American retailers must upgrade their credit/debit card terminals to EMV or "chip" card technology.

Unlike a standard credit/debit card with that magnetic strip on the back that holds your account number and everything a thief or hacker needs to rip you off, a chip card has a chip embedded on its left-front side. When inserted into a chip card terminal, the chip encrypts your card number on every transaction.

"We call it 'tokenization,'" said Stephanie Ericksen, Vice President of Risk Policy at VISA. "We replace your account number with an unique, substitute number (on every transaction), and if that number is stolen, the thief's opportunity to use it for fraudulent transactions is limited."

"It actually scrambles the number so it is very difficult to steal," said Bill Hardekopf, CEO of LowCards.com.

Hardekopf said after the chip "tokenization" card system became standard in Europe, it cut credit card theft and counterfeiting there by a third.

It all sounds great to Bob Dickey of Hernando, MS. Dickey and his wife were among the more than 40 million Target customers whose card information was compromised in the department store chain's 2013 data breach.

"I'd love to know that we had a better way to protect ourselves from all that," Dickey said.

There's one slight problem.

The chip terminals are expensive. The upgrade will cost retailers as much as $200 per cash register, according to Hardekopf.

Aaron Coppedge, general manager of The Corkscrew Wine & Spirits, 511 S. Front St., said it cost $1,000 to upgrade the card terminal at the liquor store, one of the Mid-South's first to activate the "scrambling" feature of the chip cards.

"We have so many customers from Europe and overseas (due to Memphis In May and Graceland) that we had no choice but to go all the way," Coppedge said.

Big box retailers, including Target and Home Depot stores in Memphis, have installed the terminals, but won't activate the chip-sensing part until the October deadline.

Until those retailers catch up, card-issuers are sending customers their first edition of chip cards with the magnetic strip still on the back so that they can be swiped for transactions.

"As long as the strip is on there, you have un-encrypted information that can be read fairly easily," said Jeff Horton, owner of One Point Solutions Group of Germantown, TN, a network security auditing company. "So the card can be stolen. You can read information off of that."

"I mean, as long as I am exposed out there, I run the risk of going through all that rigmarole again as I did before (with Target)," said Dickey.

This means unless you're at a store like The Corkscrew, whose terminal is already scrambling card numbers for your protection, you'll have to treat your first chip card like it's a standard card.

So follow these rules for the first generation of chip cards that also have magnetic strips:

* Don't use a chip debit card at a full-service restaurant, a gas pump or any location where you cannot witness the swipe. Only use a chip credit card at those locations. Even if someone lifts your card information from the magnetic strip, you will not be liable for more than $50 of any disputed credit charge. Most cards on the market now, including chip cards, carry zero liability for disputed charges.

* See if your credit card company offers a smart phone app for transaction alerts. Horton's American Express card carries the feature.

"Anytime there's a charge on my account -- whether it's a swipe or an auto-pay charge -- I get a text message that alerts me to that charge," Horton said.

Once all retailers are on board, the banks will start issuing cards that carry only the chip -- no magnetic strip -- so you shouldn't have to worry about the typical precautions. Retailers must have fully integrated terminals by October, or Ericksen said they will be held liable for card data thefts at their stores instead of the banks that issue the cards.

USA Today compiled a helpful Q&A about the chip card technology and the pros and cons of chip-&-PIN versus chip-&-signature cards. Find it here.

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