How Credit Card chips work

Credit cards integrated with chips has become standard in stores around the United States. But what is the point of these chips?

The problem stems from the magnetic strip that is present on every type of credit card. These strips help a machine to read data once it’s swiped. The strip contains three tracks of data, the first two are encoded with personal information such as the actual credit card number and the full name of the credit cardholder. The third track of data acts as a secondary storage for this information. But it’s clear there is a problem with storing personal information on this magnetic strip as over the past few years thieves have been able to obtain this information increasingly easier. For example the Target credit card breach made headlines in 2013 when hackers stole the card information of 40 million customers.

This is where chip cards come into play.

The chip which is called the EMV chip is named after the three companies that invented the chip: Euro-pay, MasterCard, and Visa. The chips have become a standard way of making card transactions securely. The main difference between the chip and the magnetic strip is that the while the magnetic strip stays the same, the chip creates a unique session for every transaction. This means that if a thief were to obtain the EMV chip information of a specific transaction, the information would be useless since it wouldn’t be used again. The idea of the chip revolves around the principle that while the data might not be harder to steal, the data is rendered invaluable to steal.

How do EMV chips work? The chip acts as sort of a miniature computer within the credit card because not only can it store data, but it can also process it. The reason why chips are so secure is because they utilize encryption when communicating with a card reader. The chip itself is idle by itself, but becomes active once it comes into contact with a checkout terminal. This beneficial because it allows the chip to be used without having to connected to the internet. This same chip technology is used within phones to conduct mobile transactions. Another aspect that makes chips more secure than stripes is that they require a four digit pin from the cardholder to authorize the transaction.

However credit card chips do not solve everything. Credit card chips do not make your information any harder to steal, and have relatively little effect on credit card fraud. Credit card chips also have no effect on the security of the cardholder’s account. It should also be considered that credit card chips while securing transactions digitally, are useless if the physical card is stolen.

Sources:

https://money.howstuffworks.com/personal-finance/debt-management/chip-and-pin-credit-cards2.htm https://www.creditcards.com/credit-card-news/glossary/term-magnetic-stripe.php

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