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July 13, 2017

In The Fraud War – The Chip Trumps The Stripe

chip card technology

What is it about the microchip that makes credit and debit cards so much more secure than those that contain only the magnetic strip?

It’s In The Numbers

Magnetic stripes contain information that doesn’t never changes.  It includes the account number, the expiration date, the 3-digit security code and even your name.  That stored information makes it relatively easy for a thief to use a cheap machine known as a skimmer to scan and store the card information from the magnetic stripe.  Skimmers can be placed inside ATM machines or gas pumps and retrieved after you leave.  Even your PIN code will be captured by the skimmer and a professional thief can easily make a duplicate credit card using another type of machine.  It will look and feel just like the credit card you are carrying.  It will also be fully functional just like the one you are carrying.

The chip card technology, known in the credit card processing industry as an EMV card, doesn’t use static numbers such as the 16-digits on the face of your credit card.  While those numbers identify you to the credit card issuer, they are no longer used in the electronic processing of a transaction.  Instead, the chip relies on a dynamic system of   ever-changing numbers to verify and authorize each single transaction.

The technology is like a moving target for criminals. A unique number or “token” is generated with every single transaction.  The actual debit and credit card information is never stored on the chip.  If a data breach occurs, any information the hacker obtains is useless once the transaction has been completed.

Adding to the security effort is a requirement that customers either sign the transaction slip or use a personal identification number to complete a purchase.  The Chip-and-PIN method is similar to the way debit cards typically work.  EMV cards won’t prevent data breaches but they should make it much harder for criminals to profit from the numbers or data they steal.

The kind of dynamic system the cards use is also the basis for near-field communication (NFC) technology, which is used in mobile payments systems such as Apple Pay, Samsung Pay and Android Pay.

The technology represents a complete shift in the way we’re transacting business and the way we are protecting the payment systems we use each day.  The chip reader takes a few seconds longer than a swipe but those few seconds can save you a lot of heartache in the future.

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