How smart cards protect you from identity theft

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Welcome to Dollar Scholar, a personal finance newsletter written by a 27 year old who still understands: me.

Every week I talk to experts about a money issue that I have, whether it’s “Do I online banks wave? or “How many credit card do I need it? ”As I learn, I’m sharing simple ways to improve your financial life… and posting cute dog photos.

This is (part of) 16th issue. Find out below, then subscribe to get future editions of Dollar Scholar every Wednesday.

No one asked, but here is my final chip power ranking:

  1. Doritos 3D. I used to devour these crisps in elementary school, and now every two months I check food news sites to see if Frito-Lay has come to his senses and ditched them. (Bad luck so far.)
  2. Chip Skylark, a Quite strange parents character voiced by Chris Kirkpatrick of * NSYNC.
  3. Barbecue fritos. Unfortunately, they are no longer sold in stores. (Honey barbecue twists can go to hell. They aren’t the same, and 15,000 of us know it.)
  4. Caramel crisps, especially Heath Bits o ‘Brickle.
  5. This a gigantic nuggets of cheddar cheese and sour cream that I tell anyone who wants to listen.

You know what didn’t make the list? Smart cards. I’m not a fan of crisps, although they seem to be everywhere these days. They take too long to use. Instead of quickly swiping and being on my way, I have to stand uncomfortably in front of the cashier until the card reader starts beeping angrily.

But with all the data breaches in the news lately, I’ve started to wonder if my annoyance isn’t stupid. Should I shut up and trust the chip?

The short answer is yes, according to Julie Conroy, research director at the financial analysts firm Aite Group. The EMV chip, which is that little square of metal built into most credit and debit cards, is much more secure than the magnetic strip of yesteryear.

The magnetic stripe was very vulnerable to fraud because all of a person’s payment data was contained therein. Whoever captured the tape got that information, and that’s how things like the Target violation in 2013 happened. The criminals Could steal credit and debit card information from store payment terminals, which collected magnetic stripe data every time customers swiped their cards. No less than 110 million people have been affected.

Conroy told me that smart cards are “exponentially” more secure. That’s because when I dip my card, it transmits “a dynamic cryptogram that generates a unique code, and only the issuer on the other side of the equation has the key to that code,” she says.

Basically the chip makes it harder for bad guys to get and use my personal information. Love a good thwarting!

Because chip-supported purchases are so much more secure, the payments industry has worked quickly to engage as many merchants as possible. It has long been all the rage in Europe, but the United States didn’t really budge until 2011/2012. It was then that the big card companies announcement they made crisps a priority.

Part of the way they forced retailers to change was by setting a date for the transfer of liability in the event of fraud. As of October 2015, if a business did not accept the chip and there was fraud in their store, they were responsible for the charges.

Amy Zirkle, vice president of industrial affairs at Association of electronic transactions, told me that a lot of progress in this migration has been made over the past year. Maybe that’s why I see crisps appearing more often in my life.

According to Visa, more than 3.5 million storefronts now accept smart cards. (The change for gas pumps is underway.) It is having the desired effect: Merchants equipped with chips have seen a 76% decrease in fraud.

More good news: The time I have to spend making awkward eye contact with the 7-Eleven worker when I just want to buy my Coke Slurpee and GTFO is decreasing. CardFellow reported there was a 15 second delay between inserting a card and proceeding with payment. Now it’s up to a second.

“At the end of the day, it’s about protecting consumers and creating a smoother, faster experience,” says Zirkle. “It might not have seemed that way at first, but that’s the goal.”

Conclusion: I should stop complaining about smart cards. Contactless payments are on the rise and wait times are decreasing, but security is really the big improvement over the magnetic tapes I’m used to.

“The chip is like a sophisticated computer,” Zirkle explains. “As soon as you insert the card, you are in a much safer environment.”

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