The U.S. was not an early adopter of chip-and-PIN credit cards, lagging behind major European countries and others. But more than a year after the official mandatory shift to this technology, the transition has reshaped most credit card transactions. As a result, the rate of credit card fraud is down sharply.

Catching Up With Chip-and-PIN Credit Cards

The compliance standard associated with these cards is known as Europay, MasterCard and Visa (EMV), after the card issuers that originally came up with it. The standard is now independently administered.

EMV became mandatory in the U.S. in October of 2015, at which point liability for fraudulent transactions using non-EMV cards shifted from banks to retailers. While most large retailers, which account for the majority of credit card sales, have adopted compliant card-reading technology, many smaller retailers have not yet shifted. That puts them at risk of fraud — and they could be left holding the bill for any monetary losses.

Chip-and-PIN credit cards contain a chip that communicates with EMV-capable card readers at the point of sale, generating a unique transaction code that makes fraud involving physical credit cards much more difficult.

The good news is that, a year after the shift in liability, chip-and-PIN credit cards are now widespread and used in most transactions. According to Arc, a study by MasterCard found that 88 percent of MasterCard-issued credit cards now contain the chips, and about 9 out of 10 cardholders use them. This represents a 38 percent increase since the new standard went into effect.

A Long Way to Go

Many retailers, however, continue to lag. MasterCard registered some 2 million EMV-compliant merchants, which represents about 33 percent of U.S. retailers. Some of the remaining two-thirds may not take MasterCard, but it’s clear that many retailers still have not adopted EMV-compliant card readers at their checkout stands.

That said, 1.3 million of the compliant merchants are described as “regional or local merchant locations,” representing a one-year increase of 159 percent. These merchants are making substantial progress toward compliance, even if they still have a long way to go.

The effect on fraud is striking. The level of fraud among compliant retail merchants is down by 54 percent, according to the MasterCard study. Meanwhile, the cost of fraud to noncompliant merchants increased by 77 percent in the period between April 2015 and April 2016.

As the reality of this divergence sinks in, retailers of all sizes will see a continuing incentive to adopt EMV technology to gain the full protection of chip-and-PIN credit cards.

Download the 2016 IBM X-Force Report on Security Trends in the Retail Industry