How Does My Credit Card Chip Work?
Within the last year, several banks have provided their customers with credit cards featuring a small chip. These credit card chips are said to have more security features, and with so many data leaks and network hacks in the last few years (let alone months) where millions of users’ sensitive information has been compromised, this is the type of technology we need. How does this work, though? What makes a credit card chip more secure than a magnetic strip?
Before we dive into how a chip works, we must first understand how a magnetic strip-enabled card works. A traditional magnetic credit card stores your account information. When swiped on any merchant services credit card machines, it magnetically transfers your account information to the card reader, therefore allowing it to make your payment.
A credit card chip works similarly to the traditional credit card with magnetic strip. Instead of swiping, users insert their card chip-side up into a portal located at the bottom of the card reader at the register, commonly referred to as “dipping the chip.” The chip has your account information, but it doesn’t tell your information directly to the reader. Instead, it creates a unique code that can only be accessed once.
Think of it this way: You find out that someone in your office has your favorite cookies in his or her office, but you don’t know who it is. You ask your coworker Gerald, and he speaks with you and shares that Carla has them. This is direct and makes it easy for you, but anyone hearing your conversation now knows this information. That being said, by the time you make it to Carla’s office, all the cookies could be gone because the eavesdroppers beat you to her desk.
Now, what if you asked Gordon, who answered you in an email that said this person was currently in the break room? You would look in the break room, see that Carla was there, and know that she was the person to ask about the cookies. There are no eavesdroppers in this case, and if someone was to access this information later, it would be too late to know that it was Carla and would likely be cookie-less.
In this scenario, Gerald is a magnetic credit card while Gordon is a chip card. Since Gordon spoke in code, only you would know who had the cookies. This secured your ability to get a cookie before they ran out. Since Gerald was not discreet, this made the information more accessible. His main goal was simplicity instead of security.
The encrypted nature of credit card chip technology is what makes these the most secure option for financial security and data protection. Previously, this technology was seen as something that would catch on as time grew on (credit card chips have been around for close to thirty years). With the recent wave of data breaches, though, the urgency for this technology to be adopted has sped the process up. Laws are changing to push store owners to use chips to read cards instead of magnetic strips.
As of October 1, it is in all parties best interest to have credit cards with chip capabilities and for stores to have card readers with chip reading abilities. If a card has a fraud, the liability now goes to whatever party (merchant or bank) has the older technology. For example, if a person with a chip card experiences fraud from a store that did not have chip-reading capability, it is the store’s fault. If a person experiences fraud and the bank did not provide the customer with a chip card, it is the bank’s fault if the store has a chip reader. If a person experiences fraud, does not have a chip card, and the store has no chip reader, the liability goes to whoever (merchant or bank) has the older technology. As always, you will still not be liable for any transactions you did not authorize on your cards.
We are in very difficult times. Technology is changing, and with it, we are must change with it in order to continue improving the world we live in. Credit card chip technology is revolutionizing how we distribute our finances and does so in a safer way.