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Spokane, Washington  Est. May 19, 1883
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Credit cards get tech upgrade

Banks, merchants changing to higher-security system

Banks and credit unions across the region are making the switch from magnetic swipe cards to the cards of the future – the safer kind with a microchip built in.

The past year’s string of high-profile data breaches and cyberfraud incidents has pushed financial institutions in the United States to start adopting chip-based cards that already are widely used across much of the world.

By next year, nearly every sizable bank or credit union in the country is likely to make the switch for credit and debit cards.

Spokane-based STCU is among the first credit unions in Eastern Washington to issue the EMV (Europay, MasterCard and Visa standard) chip cards to its members.

Among banks, Washington Trust Bank and JPMorgan Chase are sending EMV cards to customers.

“We know that this will give our members more peace of mind,” said Belinda Caillouet, STCU’s chief operations and information officer.

STCU, Eastern Washington’s largest credit union, has issued the new cards to about 750 members, primarily those who travel outside the country. It’s also testing EMV cards with 500 employees, Caillouet said.

Aside from protecting customers against fraud, the shift to chip-based cards will save money for financial institutions, which now bear nearly all the losses related to card fraud.

So far this year, Washington Trust has replaced close to 20,000 debit or credit cards because they were either hacked or exposed to possible hackers, said Karen Geyer, the Spokane-based bank’s product manager.

EMV cards are replacing older magnetic-stripe cards that have been around since the 1970s. The new cards are said to be safer because the chip embedded in the card encrypts data and changes that data for each transaction.

In some but not all cases – depending on retailer technology – EMV cards will also prevent a hacker from using a cardholder’s card number for online purchases.

For the near future EMV cards will also include the magnetic stripe, since the adoption of chip card readers isn’t widespread in the U.S. The exceptions are major retailers such as Walgreens, Wal-Mart and Target, Caillouet said.

While EMV technology has been around for years, U.S. banks and retailers have held back from adopting it. Customers were not demanding the change and each side wanted the other to initiate the shift to the newer system.

The cost of making EMV cards is significantly higher than making magnetic-stripe cards, Caillouet said. A magnetic-stripe card may cost STCU a quarter, but the EMV will cost about $1.75 per card, she said. Banks will not charge customers for the new cards.

Merchants also will have to spend more for new readers.

Jim Johnson, co-owner of Jim’s Home Brew Supply on North Division Street in Spokane, was required by his bank two years ago to upgrade to an EMV-capable reader.

“It cost us $300,” Johnson said.

Geyer, at Washington Trust Bank, said the bank plans to issue more than 10,000 EMV cards next year.

A key reason for the rollout, Geyer said, is the national “liability shift” due to occur in October 2015.

For now, a merchant that handles a fraudulent card transaction, either online or in a store, is usually not required to absorb the loss.

Next October, the regulations say the loss will be borne by the party with the weakest technology.

If a customer pays for a transaction with a chip card and the merchant uses the older system, the merchant is liable, Geyer said.

The opposite side of liability will also apply: If a merchant has a new terminal, but the bank hasn’t issued a chip and PIN card to the customer, the bank will be liable.

Another deadline is October 2017, when all service station fuel dispensers will need to be able to process chip cards.

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