Credit cards to start using smart chip technology

SAN FRANCISCO (KGO) -- The biggest change to credit cards in years is now underway. Banks and retailers are switching from magnetic strip-based cards to ones with smart chips.

Sandy Olsen grew up in Northern California but now lives in Italy, where cards embedded with smart chips have been in use for more than a decade. They are now being used here in the U.S. and credit card companies are mailing out millions of them.

"I've never had any instances of credit card fraud on my account," Olsen said.

With the new chip cards, you insert your card into a terminal rather than swipe it.

"While the card is in the terminal, the chip is actually generating a unique one-time code that changes with each transaction. The benefit of that is if a criminal steals that data, they can't use it to create a new counterfeit card," VISA spokesperson Stephanie Ericksen explained.

And that's huge because Visa says that's about two-thirds of the fraud seen in stores today.

"They can't copy your card, they can't make counterfeit cards, they can't sell that number on the Internet for other people to use to make counterfeit cards," Ericksen said.

Retailers don't have to switch over to chip card readers, but if they don't, there is a price to pay.

"Right now, if there is a fraudulent charge, I am not liable and the consumer is not liable. In October, if I don't have these up-to-date machines and there is a fraudulent charge, I'm liable," said Pete Mulvihill with Green Apple Books in San Francisco.

The only thing that really changes for consumers is, rather than swipe, you will insert.

By the end of the year, 63 percent of all cards should have the chips. But the magnetic strips will continue to work as well.