Good Question: How Do Chip Cards Work?

MINNEAPOLIS (WCCO) — It’s the time of year when people pull out the credit cards more often. At places that use chip cards, those transaction will take a little longer.

The technology behind those chips makes it safer, but how does it work? Good Question.

EMV, which stands for Europay, MasterCard and Visa, cards have been around for fifteen years across Europe and parts of Asia. According to creditcards.com, about one-third of retailers in the U.S. use them.

The chip is a computer chip, which makes it different from the magnetic stripe that’s been used for years.

The magnetic stripe technology on the back of a credit card includes information like the card number or the expiration date.

“But, it’s put on the back of that card, in what’s called clear text,” says Jason Witty, chief information security officer at U.S. Bank. “It’s not encrypted information.”

That information is always the same, which makes it easier for hackers to copy the card.

“Whoever accesses that data gains access to a cardholder’s information,” says Massoud Amin, director of the Technological Leadership Institute at the University of Minnesota.

The chip technology uses cryptography to scramble a portion of the account information and validate the transaction. It creates a unique code at each point of sale.

That’s also why it takes a few seconds longer to validate the transaction.

If the hackers steal the information from that chip, “they don’t have enough of it to replicate the card and that’s why it’s safer,” says Witty.

Visa has reported the merchants who use the chip technology have seen a 47 percent drop in counterfeit fraud since last year.

Visa has reported that with its merchants using chips  – on average — they’ve seen a 50 percent drop in counterfeit fraud.

Ultimately, Witty says an even safer was to pay it with tokenization – technology like Apple Pay or Samsung Pay where the device doesn’t store the credit card number.

More from Heather Brown
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