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48 Investigates: New microchips will be replacing the magnetic strip on credit cards

(WAFF) -

Paying with plastic is about to change in the United States. You will be getting new credit and debit cards, if you haven't already, in the mail that have a little microchip in them.

Banks will be replacing 1.2 billion of the current magnetic strip cards with EMV chip cards. So when your new card shows up what are you supposed to do?  And why the change?  Experts say there's a lot of consumer confusion out there.

Kelsey McLean was on her honeymoon when she got word she was the victim of credit card fraud.

"I was horrified, I was absolutely horrified." said McLean.

She spent months cleaning up her credit. So when her mail recently arrived with a replacement credit card, containing a little microchip she was excited to learn more about this new fraud fighting measure.

"I think it's a good step in the right direction." said McLean.

The new microchip cards are called "EMV" cards—which stands for "europay, mastercard and visa". EMV is the global standard for chip card technology.

All U.S. debit and credit cards will eventually be replaced with this technology.

"This is the most significant upgrade to the payments infrastructure in our country in the 40 year history of the credit card." said Jason Oxman from the Electronic Transactions Association.

So, how do they work?

The 8 million merchants in the United States that lets you pay with plastic will be installing these new chip card readers. And when you get your new card instead of swiping that old magnetic strip, you will "dip the chip" side of the card into the machine for a few seconds, allowing the chip to communicate with the card reader.

"The new chip cards generate a unique or dynamic security code with each transaction." said Oxman. "What that means is every time you use your card that chip that is embedded in the card is going to generate a new security code that will not be repeated again when you use that card the next time." 

People may ask why the change in the card and the businesses have an answer for you. 

With magnetic strip cards, the security code is the same for each transaction. That makes it easier for criminals to make counterfeit cards, which is the top cause of "in store" fraud.  But the microchip card codes are always changing and proponents say that is tougher to replicate.

"My top message for consumers with these credit cards is, be excited!"  said Sean McQuay from Nerd Wallet.

Be excited, but experts warn be mindful, these new cards will not stop someone from stealing your chip card and using it in a store and it won't stop someone from using stolen credit card numbers to make online purchases.  

In fact, a Nerd Wallet study predicts online fraud will likely increase once these chip cards are rolled out.  They say that trend happened in the UK, when it adopted the technology.

"Fraudsters want to be able to steal people's money and so they are going to recognize 'now I can not make copies of people's credit cards I'm going to start doing other things I am going to try to steal their credit cards and I am going to figure how to hack more online, both of which they can continues to use to exploit the system." said McQuay.

McLean says using her chip card does take longer to process the transaction but as a victim of fraud, she is fine with that. 

"It's a bit of a hassle, but a few seconds and well worth it." said McLean.

Master Card estimates 63% of all U.S. credit cards will have embedded chips by the end of 2015. and 98% will have the chips by the end of 2017.

Do not worry if you don't get your new card right away, you can still use your magnetic stripe card to pay. The new card readers offer both options. 
Experts say you should always be vigilant to check your credit card statements and transactions to make sure you do not have any unauthorized charges.

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