What is a chip card?
Chip cards are often referred to as EMV cards (which stands for Europay, MasterCard, and Visa). EMV is a technical standard for chip cards and the payment machines that accept them. This standard requires the chip cards to store their data on circuits (the shiny, gold-plated addition to your new card) instead of on magnetic strips. These chip cards are essentially the same as your old credit and debit cards, but with the potential to be much more secure.
How do they work?
Chip cards use a dynamic authentication verses a static one. The magnetic stripe cards issue a single value when used. It’s the same every time—anytime the cardholder uses it. Conversely, chip cards issue a different value every time the card is used. This makes it difficult for devices to collect credit card information and use it illegally.
Are they more secure?
This is a tough question because the answer should obviously be ‘Yes’. Chip cards are designed to be more secure. In Europe, where chip cards have been used for much longer than America, they are certainly much safer for the cardholder. However, in America, the cards have several flaws.
The biggest flaw is that American credit cards require a chip and signature authentication. After making a credit card purchase, you are usually prompted for your signature. However, signatures are incredibly easy to falsify. No one checks them. No one monitors them. If your chip card is stolen, there is absolutely nothing stopping the thief from using your card until you cancel it. In Europe, they implemented a chip and PIN authentication, which we use in the States on our debit cards (even the chip enabled debit cards). Most American card companies have shied away from requiring a PIN on their credit cards because it may “unnecessarily complicate” the transaction.
Another flaw is that the cards still have a magnetic strip on them. When you use the strip to pay for your purchases instead of “dipping the chip”, you are utilizing the static authentication, rendering the extra safety provided by the chip completely useless. This is often not your fault—plenty of business simply have not switched over to the new technology yet because it is costly and provides little to no benefit for them. It could have consequences, though. As of October 1, 2015, any credit card fraud committed on purchases made in a business that can’t process chip card payments falls on the business to fix. This means that instead of the bank reimbursing you for a fraudulent charge, now the business will have to do so.
Hope for the future
The good news is that the chip cards provide us with the potential to create a more secure buying experience. Companies like Target (who was the victim of a massive credit card hack) have the right idea—Target removed the magnetic strip on their REDcards and require a PIN to operate them. So, even if your REDcard is physically stolen from you, it is unlikely that the thief will be able to make purchases with it. Until banks issue the new chip cards without a magnetic strip and until they require a PIN, your new chip credit card really isn’t any safer than your old credit card.