The U.S. is prepping up for a nationwide migration to EMV technology which is set to revolutionize the way consumers and merchants use a credit card.
The process would require banks to issue new credit cards with an embedded microchip which experts believe would help in fighting against fraud and enhance the banking security.
"The principle thing that EMV chip cards do is address counterfeit fraud, which is the majority of the fraud that happens in the United States today, and certainly over the past few years," said Carolyn Balfany, a MasterCard product expert. "The new process makes it almost impossible for fraudsters to create fraudulent or counterfeit transactions."
According to Javelin Research, credit and debit card fraud costs a whopping $16 billion last year in the U.S. alone.
The new EMV (Europay, MasterCard and Visa) technology is scheduled to come to full swing by Oct. 1. On this date, it is expected that credit card companies and retailers have already shifted to "smart cards" that use EMV.
However, not all companies are ready to accommodate the new technology right away. Further still, there are many consumers who need to activate their new EMV cards first.
Matt Schulz, a senior analyst at CreditCards.com, cited two reasons why EMV cards are a difficult target for fraudsters.
"It makes it harder to physically counterfeit the card and it creates a unique transaction code that's passed to the merchant every time you make a purchase with the card," said Schulz. "So that means the merchant will have a lot less of your usable data and instead will have this unique transaction code."
EMV technology adds more support to traditional cards which, for several years, have solely relied on magnetic strips for providing protection. These types of cards have become prime targets of fraudsters since the data that they store remain unchanged, making it easy for counterfeiters to easily replicate it as often as they want to.
With the new technology, every time that the card is used, the chip issues a unique transaction code which can only be used once.
The new technology has already been widely used in Europe and in other parts of the world for many years now.
"In the U.S., we expect that by the end of 2015, about 65 percent of consumers' debit and credit cards will already have chips on them, and about half of the merchant terminals in the country will be upgraded," said Balfany. "We think that at that kind of rate, we will immediately start to see the benefits of the counterfeit protection."