How do chip and pin cards work

Terms may apply to offers listed on this page. The main reason for the change is security; a chip credit card is less prone to in-person fraud than cards with a magnetic strip. Here's a rundown of how chip-enabled cards make your point-of-sale transactions safer, as well as why you still need to take precautions to safeguard your personal information.

The key problem with magnetic strips on credit cards is that they contain all of the cardholder information that would be necessary to make a purchase -- or to manufacture a counterfeit card.

And with today's technology, that data can be stolen with simple phone apps or dime-a-dozen strip readers. So how does the chip in your credit card work to stymie would-be card thieves? Without getting too technical, here's the basic difference: While the data in a card's magnetic strip stays the same over time, the chip in your card generates a unique code for each transaction that can only be used once.

In other words, each time you insert your chip credit card into a reader -- or use its contactless payment function -- the computer in the chip generates a new transaction code for that purchase. This means that even if a thief managed to copy your credit card chip information for a specific point-of-sale POS transaction, they would be unable to do anything with it.

The same point holds true for data breaches at retailers. Your credit card chip won't stop a data thief from stealing transaction data or records for in-person purchases, but it does make the data itself far less valuable and more difficult to use.

For decades, cardholders who used magstripe credit cards were required to sign for every purchase. That signature was then compared by the business with the signature on the back of your credit card. After the transition to chip credit cards, however, signatures became less common. These days, it's become somewhat rare to be asked to sign a receipt if you make a purchase with a chip credit card, though it does happen primarily at restaurants.

Most of the time, you'll insert your chip card into the reader, wait a few seconds, then remove your card when prompted often by an abrasive alert designed to ensure you don't walk away without your card. Chip-and-PIN technology is a secure method to store and exchange sensitive credit card and debit card account data between merchants and their customers.

EMV stands for Europay, Mastercard and Visa, the three organizations that created the original chip card specification that was unveiled in EMV was created to combat mounting losses related to the use of stolen and counterfeit credit cards. EMV began to roll-out in earnest in and has seen widespread adoption in Europe, Canada and Asia.

Chip cards have been proven to be effective in reducing card-present counterfeit fraud in every region where the technology has displaced magnetic stripe. The US was among the last major global economies in the world to make the transition. That transition entered an important phase on October 1, when a key shift in liability took place. Previous to the shift, liability for counterfeit fraud generally fell to card-issuing financial institutions. The EMV liability shift helped incentivize businesses to adopt and certify EMV-compliant credit card acceptance equipment.

Using the same technology behind analog cassettes, magnetic stripe cards recorded contained all the data necessary to conduct a credit or debit card transaction. Magstripe came into widespread use in the s and represented a significant security upgrade from paper-based credit card imprinters.

Unfortunately, the technology behind magstripe eventually proved fairly easy for hackers to break. Chip-and-pin cards were introduced in the United Kingdom in , and were officially introduced to the U. Chip cards got their name because of the embedded gold or silver microchip that is found on the front of the card.

This chip generates and keeps a record of unique data for every transaction. It also encrypts cardholder information as a means of increasing security against card-present fraud. However, this form of data acquisition has grown extremely vulnerable to fraud as a result of technological advances in recent years. As such, there has been a global migration to EMV cards. Because chip cards provide unique data for every single transaction, it is much more difficult for fraudsters to achieve card-present fraud.

However, chip cards are not bulletproof. Therefore, it is still critically important for both customers and merchants alike to take appropriate anti-fraud measures to protect sensitive financial data.

The entire EMV card-present payment process was created to protect against fraud and works as follows:. Chip cards are much safer than the previously used stripe cards, which contained sensitive customer data within the magnetic stripe on the back.

To process a transaction with the swipe cards, terminals simply read the information on the magnetic stripe and the customer would then confirm the transaction with their signature.

This is due to the unique, encrypted code that is generated each time you initiate a transaction. This code allows your actual credit card number to remain concealed and makes any data derived from thieves during a transaction absolutely useless. If someone uses your credit card or card number for fraudulent purchases, all you have to do is call your card issuer and report the fraud. From there, the fraudulent transactions are wiped from your account, and your issuer will take over the investigation from there.

You can also earn 5 percent cash back on travel purchased through Chase Ultimate Rewards , 3 percent cash back on dining, 3 percent cash back on drugstore purchases and 1. As an added bonus, you can qualify for an introductory 0 percent APR on purchases for 15 months, followed by a variable APR of You will receive cash back in the form of statement credits.

Just keep in mind that cash back earned with this card can be redeemed for statement credits to your account. Chip and PIN technology may be fairly new in the world of credit cards, but it is definitely here to stay. However, you should take the time to compare the top chip and pin and chip and signature rewards credit cards on the market today since their benefits can vary. With some research, you can wind up with a credit card that has the best security features and the rewards and perks you want the most.

How We Make Money. Holly D. Written by. Holly Johnson writes expert content on personal finance, credit cards, loyalty and insurance topics.

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