How does a credit card chip provide protection against identity theft?

The U.S. adopted EMV technology in 2014, so most of your card-issuing banks have probably sent you chip-enabled credit and debit cards already.

However, since chip cards haven’t been around as long as magstripe cards, you might not wholly understand how it works yet—or what EMV even means. Most just know that the credit card chip minimizes the risk of credit card fraud. 

In this post, we’ll explain everything about EMV cards. Our team reviewed resources from card networks, banks, and anti-fraud experts to give you first-hand insight into credit card chips.

We’ll show how to use chip cards for contactless payments. Security and anti-fraud techniques are important, but you’re missing out if you still use chip-enabled cards like magstripe ones.

Please read without skipping. We’ll also share the biggest hassle that chip-and-signature and non-chip cardholders encounter when traveling overseas. In the worst case, most stores will reject your card.

Let’s dive into how chip cards work!

How credit card chips work

Chip cards, otherwise known as smart or EMV cards, look similar to conventional magnetic stripe debit and credit cards. The primary difference is that they have an embedded security microchip.

Before anything else, let’s address the elephant in the room: are chip cards more secure? The answer: yes.

Credit card chips follow the updated security and privacy standards set by the credit card networks Europay, Mastercard, and Visa (EMV). Unlike older magstripe cards, chip cards encrypt the cardholder’s personally identifiable information (PII). 

We’ll flesh out the chip card’s security details later. But to give you an idea, hackers generally can’t abuse encrypted data unless they know your security PIN or signature.

How credit card chips prevent fraud

Consumers swipe magstripe cards on card terminals. Transactions will push through if the card’s magnetic stripe carries the necessary PII and the account has sufficient funds.

Although convenient, this setup puts you at risk of fraud. Hackers can create a working clone of your credit card by simply skimming it.

Fortunately, EMV standards address this issue through encrypted credit card chips. 

Encrypted microchips require one-time tokens to decrypt PII per transaction, which criminals can’t easily bypass. Skimmed chip cards will likely contain useless, encrypted files.

Moreover, chip card transactions often require a PIN or signature. As long as you keep your personal information private, your chip cards will always reject unauthorized in-store transactions. 

However, we must emphasize that chip cards don’t serve as a one-size-fits-all solution against fraud. On the contrary, they primarily address card-present fraud.

You still need extra data privacy and cybersecurity measures to combat card-not-present attacks from identity thieves.

2 types of chip cards

There are essentially two types of chip cards, namely:

1. Chip-and-signature cards

As the name suggests, chip-and-signature cards require the cardholder’s signature to authorize transactions. They are the most widely used type of chip credit card in the U.S.

As chip cards, they provide better protection than conventional magstripe ones. However, they’re not as secure as chip-and-PIN cards.

Think about it—most retail cashiers won’t bother checking your signature. So, although you can dispute fraudulent purchases, expect most transactions from stolen chip-and-signature cards to push through initially.

2. Chip-and-PIN cards

Chip-and-PIN cards require cardholders to enter their PINs before processing any purchase, regardless of size. The transaction will automatically fail if you enter the incorrect PIN.

Considering this level of security, we can honestly say that chip-and-PIN cards are more secure than their chip-and-signature counterparts. You’d do well to ask your card-issuing bank for them.

Financial institutions typically use chip-and-PIN technologies for debit cards, although you’ll also find them in special credit cards.

Why having a credit card chip matters

We believe consumers and merchants should transition to chip card transactions for the following factors:

Global adoption

Many other countries relied on chip cards before the U.S. did. Americans only started adopting EMV technologies in 2014, although chip-enabled cards have been around since the late 90s.

EMV-approved security

EMV technologies provide the best protection against skimming and card-present fraud. Note that hackers can quickly copy and clone magstripe cards by skimming them with fake terminals.

Payment processing developments

The credit card chip is the gateway to more advanced, convenient payment processing options.

Let’s take contactless payments as an example. Along with the adoption of credit card chips, U.S. commercial banks also incorporated radio-frequency identification (RFID) and near-field communication (NFC) technologies into their products, thus enabling contactless payments.

Cardholders no longer needed to dip their cards into terminals. If both the POS system and the card support contactless payments, you’ll simply wave the card in front of the reader.

You can also set up contactless payments on your smartphone or wearable. For instance, if you have an iPhone or Apple Watch, you can add your chip card to your Apple Wallet and authorize payments using your phone. Yes, your smartphone replaces your card.

Magnetic stripe vs. credit card chips

Don’t worry if you’re still on the fence about chip cards. To help you further understand them, we listed their most notable pros and cons. 

Let’s start off with the advantages of using chip cards:

  • Future-Proof Payment Option: Magstripe cards will eventually become obsolete. Although adoption in the U.S. was slow, other countries and territories (i.e., Portugal, France, and the U.K.) have rejected non-chip cards for nearly a decade. Mastercard also says that U.S. commercial banks will no longer embed magnetic stripes in their chip cards by 2027.
  • More Secure Payments: The embedded microchip encrypts the PII on your card. It generates a one-time token per transaction, preventing hackers from abusing skimmed information. Also, chip card transactions often require an extra verification step (i.e., signature, PIN).
  • Additional Features: Most chip cards nowadays support contactless payments. Instead of dipping your card into the terminal, you’ll just wave it once. Contactless payments use (RFID) or (NFC) technology.

Of course, chip cards also have their disadvantages, which include:

  • Slower Transactions: Chip transactions take longer to process because middleware generates a unique security code per transaction. Yes, your purchase is more secure. Just expect some machines to take a few extra seconds or minutes, depending on the size of your purchase.
  • Steeper Processing Fees: Merchants feel hesitant about upgrading because chip transactions cost more to process on their end. Also, they’d have to upgrade to a new POS system.
  • Not Widely Available: U.S. commercial banks encourage the use of chip cards. However, many consumers don’t get the chance to use theirs because some states haven’t wholly adopted EMV technologies yet.

Despite the disadvantages, we think that chip cards are still better payment options than magstripe ones.

What stores and establishments accept chip credit cards

The U.S. struggled with adopting EMV technologies. Commercial banks started using new cards with chips in 2014, but magstripe cards were still the more widely used option until recently.

After all, very few merchants accommodated chip-enabled cards. Even big-box stores like Costco, Stop & Shop, and TJ Maxx didn’t support EMV transactions in all their locations back in 2015.

Upgrading to a new POS system was costly. Also, merchants paid higher processing fees for transactions using chip credit cards.

Fortunately, the situation gradually improved through the years. 

Although cashless and EMV transactions still feel relatively new, both consumers and merchants have become more open to them. Statistics show that nearly 12 billion chip cards were circulating toward the end of 2021.

Using chip cards outside the U.S.

As we mentioned above, most U.S. debit cards use a chip-and-PIN EMV technology, while credit cards use a chip-and-signature EMV technology. 

However, other countries adopted EMV technologies differently. For instance, merchants in European countries use chip-and-PIN cards, and magstripe cards are rejected altogether.

Important: With that said, frequent travelers should get credit cards that support both chip-and-PIN and chip-and-signature EMV technologies. That way, you can quickly switch between the two verification systems.

Otherwise, you’ll have a hard time with overseas card transactions if you don’t have a chip-and-PIN card. You can just carry cash, but that’s risky in a foreign country.

Getting a chip-enabled card

You can get a chip-enabled card from most commercial banks and credit unions. The U.S. government encourages the use of chip cards, so you likely can’t request new magnetic stripe cards anymore.

You can still use your old magstripe cards. However, we strongly recommend switching to chip cards if you haven’t yet.

Apart from their more sophisticated security, major card networks plan on a 100% adoption of EMV technologies worldwide. 

Different ways to combat credit card fraud

Chip cards minimize the risks of card-present counterfeit fraud. Unlike older magstripe cards, chip-enabled cards carry encrypted data and generate a unique token per transaction. 

It’s also nearly impossible for hackers to clone chips successfully. Even if they skim your credit card, they’ll only find random, useless encrypted codes.

However, you can’t assume that chip cards are fraud-proof. Crooks can still abuse them for card-not-present transactions if they know your PIN or card expiration date, among other restricted PII.

Further prevent credit card fraud by:

  • Avoiding Phishing Attacks: Hackers often steal PII through phishing schemes. They often create fake login pages to trick unsuspecting victims into typing their login credentials.
  • Updating Your Password and PIN: Choose a strong, hard-to-guess password that consists of at least 10 characters. As for your PIN, change it every few months.
  • Monitoring Your Credit Card Statements: The consecutive lines of numbers seem intimidating. However, you need to keep track of all the purchases and transactions listed in your credit card statements.
  • Disputing Fraudulent Transactions: Report unusual transactions right away. Remember that collectors can’t hold you liable for fraudulent accounts.

You can’t eliminate the risk of fraudulent transactions, but following these data privacy and cybersecurity tactics wards off criminals.

Most secure chip-and-PIN credit cards

As we explained, chip-and-PIN cards are more travel-friendly and safe than chip-and-signature ones. Sadly, U.S. banks often offer chip-and-signature cards by default.

If you want to upgrade to a chip-and-PIN one instead, ask your trusted bank for any of the following products:

  • Chase Sapphire Preferred: If you often travel, the Chase Sapphire Preferred card suits you. You can confidently use it in 200+ territories without paying steep foreign transaction fees.
  • JetBlue Plus Card: Frequent flyers can maximize the JetBlue Plus Card. It lets you pick seats in advance, waives flight cancellation fees, and allows free carry-on luggage.
  • Bank of America Unlimited Cash Rewards: Use the Unlimited Cash Rewards card in any store that accepts it to get a minimum of 1.5% cashback on your purchases.

Feel free to explore other chip-and-PIN credit cards. Your preferred bank’s sales associate should guide you through the cards you’ll qualify for based on your credit score.

Payment processing technologies and digital privacy

Overall, the payments processing industry is continuously evolving. Although it might seem tedious, you’d do well to stay updated on the latest trends and developments.

Who knows, even chip cards might become obsolete. Remember: magstripe credit cards were the most widely used and accepted payment option worldwide until just a few years ago.

Also, endeavor to bolster your data privacy and security. With the prevalence of identity theft, your first line of defense against fraudulent transactions is yourself.

Secure your PII at all costs. Considering the average credit limit of most U.S. cardholders, even one fraudulent purchase could ruin you financially.

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