Definition and Examples of a Chip Card
When you use a chip card to make a payment, the smart chip electronically transmits an encrypted, single-use code to a merchant’s card reader, allowing the merchant to securely process your payment. Chip cards can be found all over the world. But they weren’t very common in the United States until 2015 after the world’s largest card networks began pressuring U.S. retailers to replace their payment terminals with readers that accepted chips. Previously, most American retailers only accepted magnetic stripe payments. Shortly after the card networks set a hard deadline for U.S. merchants to shift to chip-card readers (or else be held liable for in-person payment card fraud), U.S. banks and lenders began replacing cards that just had magnetic stripes with higher tech chip cards. Today, virtually all new credit cards and debit cards in the United States are chip cards. Alternate Definition: In some cases, a chip card may also refer to a contactless debit or credit card. Many chip cards can be used to make a payment without coming into direct contact with a card reader—the chip will wirelessly transmit its information to the reader. However, not all chip cards are contactless. You’ll know if your chip card is equipped with contactless technology if it has a contactless symbol. Alternate Name: Chip cards are also sometimes referred to as EMV cards, standing for Europay, MasterCard, and Visa, or smart cards. Alternatively, if you authenticate your chip with a signature when you check out, your card may be called a chip-and-signature card. If your card is equipped with a PIN that you punch in at the register, then it’s called a chip-and-PIN card. Acronym: EMV
How Chip Cards Work
Chip cards use encryption technology and single-use tokens to make chip-card payments nearly impossible to crack. When you make a chip-card payment, you’ll insert (or “dip”) the chip into a card reader and wait for the reader to process the chip before you take it back. If a retailer requires additional authentication, you’ll then be asked to sign your name to the receipt. Or if you’re using a chip-and-PIN card, you’ll punch a secret code into the card reader. If you’re making a contactless payment, you’ll simply hold your card over the contactless symbol until the payment reader beeps. Once you’ve tapped or inserted your chip card, the card’s computer chip will then generate a unique code that the merchant can use to process your transaction. The information passed from your card to the merchant will be encrypted. But even if a thief manages to break through the encryption, your payment details will still be protected. That’s because chip-card codes are designed to be used just once. So if a thief copies a stolen code onto a fake card, they’ll be turned away when they try to use it.
Do I Need a Chip Card?
You will almost certainly need a chip card at some point if you plan to continue to make card payments domestically or travel internationally. If you happen to have an older magnetic stripe card that hasn’t expired yet, you should still be able to use it. But if a retailer decides not to accept older cards without chip-card technology, you’re out of luck. You may also run into trouble if you travel abroad to countries that rely on chip-card payments and you don’t want to use cash. If your card doesn’t have a chip now, it almost certainly will when you replace it. Nowadays, U.S. card issuers only issue cards with chips.
Alternatives to Chip Cards
Some cardholders complain that chip-card payments are slower to process, particularly when you have to insert your card into a reader and wait for it to beep. Chip-card technology has come a long way since it was first introduced to the United States. So it’s not as slow as it once was to process. But if you’re in a rush, you can potentially save time by using your phone or other wearable, such as a smart watch, to make contactless payments. Contactless payments only work, however, if a merchant’s payment reader is equipped with near field communication (NFC) technology. Alternatively, you may be able to simply pay the old-fashioned way and use cash if a merchant accepts it.
EMV vs Magnetic Stripes
EMV chips are widely considered to be the gold standard for secure, in-person payments. But the magnetic stripe technology it replaced has a much worse security record. Before chip-card payments were introduced in the United States, card-present fraud that occurred in stores was much more common. Security experts say that magnetic stripe payments are also more vulnerable to theft because they transmit the same information for every transaction. In addition, chip-card payments are more secure than magnetic stripe payments. So you don’t have to worry about your card details being stolen and used to make a bogus card.
How To Get a Chip Card
It’s easy. Just apply for any credit or debit card from a U.S. bank or credit union and you can rest assured that the card you get will almost certainly be a chip card. Key Takeaways
